By Rhiannon Hoyle
SYDNEY--Rio Tinto PLC notched a record first-half net profit and more than tripled its midyear payout to shareholders, benefiting from a bull run in commodity prices that has stoked inflation expectations around the world.
The world's second-biggest mining company by market value on Wednesday reported a net profit of $12.31 billion for the six months through June, up from $3.32 billion a year ago.
First-half underlying earnings, which strip out some one-off items, more than doubled to $12.17 billion, beating the $12.01 billion consensus estimate compiled by Vuma from 14 analyst forecasts.
"Government stimulus in response to ongoing Covid-19 pressures has driven strong demand for our products at a time of constrained supply resulting in a significant spike in most prices," said Chief Executive Jakob Stausholm.
The boom in profits translated into big returns for shareholders. Directors declared an ordinary dividend of $3.76 a share, up from $1.55 a share at the same time last year. They also unveiled a special dividend worth $1.85 a share.
Rio Tinto is benefiting from elevated commodity prices, which have stirred debate about whether markets are entering an extended boom and have added to fears that inflation in many economies could become more persistent.
Iron-ore prices hit a record high in May, largely because of red-hot Chinese steel output. China produced 12% more steel in the first half of this year than last amid strong demand for the material for new buildings and cars.
Meantime, supply from major iron-ore producers worldwide has been lagging expectations, with shipments from smaller, high-cost mines filling the gap and keeping prices raised.
The commodity's benchmark price climbed as high as $233 a metric ton in May, according to S&P Global Platts, which publishes market prices. It recently pulled back to roughly $200 a ton, but remains above the peak of the last boom in prices, around $193 a ton in early 2011.
The average price Rio Tinto earned for the iron ore it digs up at its massive Australian mining hub doubled in the first half of 2021 versus a year earlier, to $168.40 a ton.
Prices for other commodities Rio Tinto produces, including copper and aluminum, also rose sharply.
Some analysts believe large iron-ore producers such as Rio Tinto might be enjoying a peak in earnings and investor payouts, forecasting that prices will soon retreat. Morgan Stanley estimates iron ore will fetch an average $160 a ton in the fourth quarter of this year, and $118 a ton in 2022.
That risks cooling Rio Tinto's profit engine: Iron ore accounted for more than 80% of Rio Tinto's earnings during the first half of this year.
Still, Rio Tinto should generate solid margins on its iron ore even at sharply reduced prices. The company said it cost about $17.90 a ton during the first half of 2021 to mine the commodity, although that doesn't include costs such as shipping, royalties or spending on projects.
High prices for the material masked what was a soft operational performance for Rio Tinto, which has been grappling with challenges ranging from the pandemic-related restrictions to above-average rainfall. The miner recently said it expects iron-ore shipments from its Australian mining operations this year to be at the low end of an earlier estimate of between 325 million and 340 million tons. First-half shipments from its Pilbara iron-ore operations were down 3% year-on-year.
The Anglo-Australian miner also expects annual copper output to be at the low end of an earlier projection after recording an 11% year-on-year slide in first-half output.
Write to Rhiannon Hoyle at email@example.com
(END) Dow Jones Newswires