FTSE 100: Rio Tinto shares slide as mining bonanza fizzles

·2 min read
Rio Tinto and other mining giants have been battling rampant inflation and staff shortages. Image: Rio Tinto
Rio Tinto and other mining giants have been battling rampant inflation and staff shortages. Image: Rio Tinto

Anglo-Australian mining giant Rio Tinto (RIO.L) reported a 28% decline in profits as it battles falling commodity prices and rising costs, in the latest sign that the mining boom era is nearing an end.

Shares in the FTSE 100 (^FTSE) company tumbled almost 5% following the announcement, down 2.9% in London.

Underlying profits at the world’s biggest iron ore producer came in at $8.6bn (£7.1bn) in the six months to 30 June, down from a record $12.2bn in 2021.

"We saw significant movement in the pricing for our commodities in the half, amidst growing recession fears and a decline in consumer confidence," the miner said.

Rio will pay a $4.3bn dividend after more than halving its interim dividend to $2.67 per share from $5.61 per share as it ended the period with a net cash position of $291m. It returned $9.1bn in the same half last year.

That is still the second largest payout to shareholders on record, but slowing global growth and surging energy prices threaten profits, exacerbated by Russia's war in Ukraine.

"Going into a period where there could be some headwinds on international markets, it’s not bad to have such a strong balance sheet," CEO Jakob Stausholm said on a media call. "Right now with the uncertainties we’re seeing, it’s probably the right thing to do."

Read more: FTSE: Miners and forex gains lift UK dividends to £37bn

The results come after a bumper year of record high profits for Rio and its rivals as they cashed in on the a surge in commodity prices.

However since then iron ore prices have come under pressure due to persistent demand concerns from top steel producer China as its zero-COVID policy curtails economic activity and weighs on ferrous markets.

Global mining firms have also been struggling due to a pandemic-induced staff shortages and rampant inflation, at a time when iron ore prices have come off their 2021 highs and are expected to remain subdued.

"While the pricing environment is becoming more challenging, the demand outlook remains positive," Stausholm said. "I always said it will take time to build a stronger Rio Tinto. It does."

Beijing last week unveiled plans to centralise iron ore purchases, further clouding the prospects for miners.

"China has more means to fix their economy and that includes sorting out challenges that they have faced recently in the property market. In the medium term... I am very optimistic that China will find solutions to the different parts of the economy," he told reporters in the media briefing.

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