The Beginners’ Portfolio: Rio Tinto plc Delivers Results

Rio Tinto plc (LON: RIO) is our biggest investment, so how did it do?

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The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.

opencast.miningRio Tinto (LSE: RIO) (NYSE: RIO.US) might not make up our most valuable portfolio holding even though I recently doubled-up on our stake, but that’s only because two of our other shares — Persimmon and Blinkx — have soared in value while Rio has stood still.

And there were good reasons why the mining sector has been in a bit of a slump — over-production when Chinese demand was falling, coupled with the Western recession, had led to falling minerals prices. And we’re not out of those woods yet!

But the Beginners’ Portfolio looks beyond the next year or two and seeks investments that should do well over decades — and it seems likely to me that we’re somewhere near a turnaround point for the sector.

2013 results!

With that in mind, how did Rio Tinto’s full-year results for 2013 turn out?

After its earlier report of record iron ore shipments of 72.4 million tonnes during the final quarter of 2013, and with bauxite and thermal coal production also hitting new records and copper staging an “impressive recovery“, a decent financial picture was expected.

Earnings up

Rio didn’t disappoint, with a 10% rise in underlying earnings per share to 553 cents.

And against expectations, shareholders got a surprise 15% boost to their annual dividend to 192 cents per share. We were told that the dividend hike “reflects the sustainable growth of the business“, and it bodes well for future dividends — the 2013 payout represents a yield of 3.4%, which is better than average.

As well as the gain in earnings, we also heard of a 22% rise in operational cash flow to $20.1bn and a 26% fall in capital expenditure to $12.9bn.

Net debt is dropping — as of 31 December it stood at $18.1b, down $4bn from 30 June, but only $1.1bn lower than a year previously.

Price fall

But fickle as markets are, investors initially pushed the Rio Tinto share price up 2% to 3,583p, and then later in the morning drove it back down to 3,450p — that’s a 1.7% drop on the day so far.

These decent-looking results do need to be tempered by the reason behind them — the rise in underlying earnings is due in large part to the company’s successful cost-cutting (which does make me wonder why companies aren’t always keeping costs down rather than only doing so when business is going through a tough patch).

And we also need to be cautious about ramping up production to record levels when demand is still subdued — another production glut putting further downwards pressure on prices is not really what we want.

A long-term hold

But all in all, these results look about as good as we could have wanted at this stage, and I’m happy to hold Rio Tinto shares for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares mentioned in this article.

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