Rio Tinto (RIO:NYE), an Anglo-Australian mining company, has stated that it will reduce Rio Tinto stock dividend by more than half in response to a 38% fall in yearly profit. The decline in profitability is attributable to a decline in iron ore prices as China’s demand slowed, as well as to increasing labor and material costs.
Rio Tinto joins other mining corporations in reporting decreased profitability and shareholder distributions as a result of production delays and rising energy costs. The Rio Tinto stock underlying earnings for 2022 was $13.3 billion, down from a record $21.4 billion in 2021, falling short of Refinitiv’s expectation of $13.8 billion. Rio Tinto declared a dividend of $4.92 per share for the entire year, a decrease from 2021’s record payout of $10.40 per share.
China’s Covid-19 limitations stifled economic growth, bringing iron ore prices down from their stratospheric levels a year earlier. Nonetheless, Rio Tinto is optimistic that Chinese consumption is showing indications of recovery and that Chinese demand will stabilize the global economy in 2023. Rio Tinto has reduced its capital expenditure forecast for 2023 from $8 to $8.9 billion to $8 billion while increasing its projections for 2024 and 2025 to $9 to $10 billion. The estimates include almost $3 billion per year for growth capital, as the miner ramps up projects such as the Simandou iron ore discovery in Guinea, the Rincon lithium asset in Argentina, and the underground extension of its huge Oyu Tolgoi copper and gold mine in Mongolia.
Despite the massive quantities of copper, lithium, nickel, and cobalt required for the transition to a low-carbon economy, large mining firms have little plans to create mines that require several years to become profitable. Others have chosen to expand through acquisitions, such as BHP’s $6.5 billion cash offer for copper and gold producer OZ Minerals.
Rio Tinto’s ambition to become a prominent lithium producer suffered a blow last year when the Serbian government canceled licences for its Jadar project in response to massive demonstrations prompted by environmental concerns over the proposed mine. The company is currently considering expanding its lithium operations but notes that the commodity is currently prohibitively expensive and that it is not planning any major M&A transactions.