Giant miner Rio Tinto Limited (ASX: RIO) has smashed analyst expectations, reporting first half earnings of US$5.1 billion.
That result excludes one off items, including US$843 million of writeoffs, a US$157 million loss on the sale of assets and foreign exchange gains of US$589 million. Earnings rose by 21%, and net debt decreased by US$6 billion, in the main thanks to strong cash flow and massive cost cutting including losing 2,200 staff.
Rio says it achieved US$3.2 billion of operational cost improvements, compared to two years ago, and anticipates another US$1 billion in savings in 2015.
Earnings across most of Rio's commodities rose, with iron ore up 10%, aluminium up 74%, copper up 71% and energy recorded a smaller loss than the previous period. But iron ore is becoming more and more what Rio is all about. The commodity now represents 92% of underlying earnings. But when you can report cash costs of just US$20.40 to dig a tonne of iron ore out of the ground, and receive around US$100 for it, Rio is clearly making a decent margin. (That's not Rio's all-in cost – which is estimated at around US$43 per tonne).
Net debt now stands at US$16 billion, and Rio has declared a fully franked dividend of $1.03, up from 93 cents in the previous corresponding period. Shareholders will receive the dividend on September 11, 2014.
Thanks to Rio and other major iron ore miners, including BHP Billiton Limited (ASX: BHP), Brazil's Vale and Fortescue Metals Group Limited (ASX: FMG) massively ramping up production, 85 million tonnes of high-cost iron ore has dropped out of the market this year. Rio's CEO Sam Walsh expects another 125 million tonnes to leave the market next year – leaving it wide open for the giants to profit from.
Investors and fund managers were looking for earnings growth this reporting season, Rio has certainly delivered, and this result might set the tone for the next few months and see the S&P/ASX 200 Index (Index: ^AXJO (ASX: XJO) hit 6,000 by the end of the year.
