Rio Tinto leads miners lower as iron ore prices weigh on earnings

[MongiIG]

Softer interim earnings from Rio Tinto see interim dividend offering slashed.

Source: Bloomberg

 

Price Dividend Iron ore Moving average Earnings before interest, taxes, depreciation and amortization Free cash flow

 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Wednesday 27 July 2022 

Rio Tinto interim results

Rio Tinto has seen its share price trading lower following relatively soft results for the interim period (H1 2023).

First half (H1) profit for the group fell close to 30% short of that in the prior year’s comparative six month period. In lieu we have seen Rio Tinto dropping its interim dividend offering from $5.61 per ordinary share (including a $1.85 special dividend) previously (H1 2022) to $2.67 per share for the current reporting period.

Salient features of Rio Tinto’s interim results (versus prior year’s interim period) are as follows:

• Net cash generated from operating activities down 23%
• Free cash flow down 30%
• Consolidated sales revenue down 10%
• Underlying Earnings before Interest Tax Depreciation & Amortisation (EBITDA) down 26%
• Ordinary dividend per share $2.67, down 29%
• No special dividend ($1.85 per share in prior year’s comparative period)
• Return on Capital Employed (ROCE) 34% (50% in prior year’s comparative period)

Comments on Rio Tinto results

Interim results highlight the impact of iron ore prices which averaged more than 30% lower than that realized in the comparative six month period. The price of iron ore has been directly influenced by China, the steelmaking ingredients primary consumer. Stricter emission and pricing controls, combined with a two month hard lock down over the last quarter have been key factors weighing on the underlying price of the base metal. China looking to centralise iron ore purchases provides some further uncertainty for miners of the commodity.

Rio Tinto Plc – technical view

Source: Bloomberg

 

The share price of Rio Tinto has gapped lower following the release of the group’s interim results. The downside gap shows strong momentum lower in line with the short- to medium-term trends. The short- to medium-term downtrends are evidence by the 20-day simple moving average (SMA) (red Line) trading below the 50-day SMA (green line).

Provided that 4810 remains resistance (and not broken with a close above), a retest of the 4420 support level remains favoured.

The long-term trend is considered sideways as we see the price whipsawing back and forth through the 200-day SMA (blue line). In lieu of this, traders preferring a long bias might hope for a bullish price reversal closer to the 4420 level for entry.