Records Smashed Again At Rio Tinto plc

Rio TintoThe story of Rio Tinto (LSE: RIO) (NYSE: RIO.US) is becoming a familiar one — a quarter passes and a production record tumbles.

And that’s exactly what’s happened again as the mining giant unveiled first-half production and profit figures, with new heights reached for iron ore production and shipments, and records being broken for thermal coal production. And the firm reported a “strong operational performance in copper“, too.

Those fearing a glut will no doubt be pleased to learn of iron shipments keeping pace with production. But there is one note of caution, as increases in copper production have shifted that market into a surplus.

Show us the cash

But eyes were more firmly turned towards profit figures, and the watchers were not disappointed as chief executive Sam Walsh told us that “During the first half we have increased underlying earnings by 21 per cent to $5.1 billion and enhanced operating cash flow by eight per cent“.

Cash from from operations rose to $8.7bn, with underlying earnings per share (EPS) climbing to 276.8 cents.

The company also beat its target of achieving $3bn in operating cash cost reduction six months ahead of plan, with a saving of $3.2bn since the end of 2012.

Capital expenditure was cut to $3.6bn for the half, with the full-year figure expected to come in $2bn below previous guidance at around $9bn — and that should drop to around $8bn per year from 2015.

All this nice cash and lowered expenses allowed Rio Tinto to cut its net debt in the half, by $1.9bn to $16.1bn by 30 June — that’s $6bn less than the $22.1bn level a year previously.

And for all you cash-seekers, Rio upped its interim dividend by 15% to 96 cents per share.

The share price responded with a 52p (1.5%) rise to 3,442p by late morning.


Does this look like a company that’s setting itself up for a great long-term future?

There are always external risks, of course, with the biggest unknown at the moment being China — especially with the country’s focus moving away from government projects and more towards private enterprise. But Rio reckons the government is “dealing effectively with the rebalancing of its economy“, pointing out that its target growth rate of 7.5% is looking good.

Analysts’ forecasts suggest a fall in EPS this year followed by a rebound next, putting the shares on a forward P/E of 11.3 for 2014 and dropping to 10.4 for 2015. But those forecasts will most likely be uprated now, so the shares are looking better value than that.

More cash!

Taking the dividend alone, if the 15% interim rise is repeated for Rio’s final dividend, we’ll be seeing around 221 cents (131p) per share, and that would yield 3.8% — forecasts currently suggest 3.6%.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.