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Rio Tinto’s reports earnings decline amidst price weakness

Rio Tinto (ASX:RIO) reported an 11.1% drop in underlying earnings for 2023 late Wednesday. Weaker prices resulted in a lower contribution from its aluminium business, despite the expected solid performance from iron ore.

The world’s largest iron ore producer said its underlying net earnings came in at $US11.8 billion for 2023, compared with $US13.28 billion a year earlier. This was largely in line with market expectations of around $US11.7 billion.

The company saw a 9% drop in underlying EBITDA to $US23.89 billion on a 3% dip in revenue for the year to $US52.04 billion.

Ordinary net earnings were $US10.1 billion for the year, after $US700 million of net impairment charges, mainly relating to the company’s Australian alumina refineries.

The full-year dividend fell 12% to $US4.35 a share from $US4.92 in 2022. In Australian dollars, the total for the year is 653.67 A cents (at the February 20 exchange rate) against 710.19 A cents for 2022.

CEO Jakob Stausholm said in Wednesday’s release that the company is “making clear progress as we shape Rio Tinto into a stronger and even more reliable company. By focusing on our four objectives, we are building a portfolio that is fit for the future – including our Oyu Tolgoi underground copper mine in Mongolia and the Simandou iron ore project in Guinea.

“We have taken significant steps over the past month towards our target to halve our global Scope 1 & 2 carbon emissions this decade with agreements to contract future renewable wind and solar power for our Gladstone operations.

“In 2023, we lifted our overall copper equivalent production by over 3% and delivered resilient financial results, with underlying EBITDA of $23.9 billion, free cash flow of $7.7 billion, and underlying earnings of $11.8 billion, after taxes and government royalties of $8.8 billion. Our balance sheet strength enables us to continue to invest with discipline while also paying an ordinary dividend of $7.1 billion, a 60% payout.

“We will continue paying attractive dividends and investing in the long-term strength of our business as we grow in the materials needed for a decarbonising world,” he added.

The company’s iron ore business remains the core, with revenue up 4% to $US32.249 billion from $US30.96 billion in 2022, while underlying EBITDA was up 7% at $US19.974 billion from $US18.61 million.

Rio expects its Pilbara iron ore unit costs to rise in 2024 due to persistent labor and parts inflation in Western Australia. Unit costs of $US21.5 per tonne in 2023 were 30 cents a tonne lower than in 2022. Cost escalation from inflation was offset by a weaker Australian dollar and gains on derivative contracts. Higher iron ore volumes offset higher mine work index and mine maintenance costs.

Rio sees costs rising to a wide range of $US21.75 to $US23.50 a tonne.

Rio said that adverse movements in commodity prices cost it $US1.5 billion off its underlying EBITDA. “Movements in commodity prices resulted in a $1.5 billion decline in underlying EBITDA overall compared with 2022. This was primarily from lower pricing for our Aluminium business, driven by London Metal Exchange (LME) prices, lower premiums and lower alumina pricing. Higher realized pricing in our Iron Ore business was offset by lower pricing for copper, diamonds, and industrial minerals.”

The company said costs across the group rose by $US1.4 billion over 2023.

Net debt was steady at $US4.2 billion.