Whatās Going On Here?Rio Tinto ā the worldās second-biggest miner ā reported on Wednesday that its profit dropped off a cliff in the first half of the year. What Does This Mean?Rio Tinto was in an enviable position last year, with metal prices on the up and up as manufacturers returned to full strength. But now that a global recession is rearing its ugly head, theyāve come tumbling back down: the price of iron ore ā the steelmaking ingredient that Rio Tinto relies on to make most of its money ā has halved since this time last year. Rioās mining costs have risen too, with the prices of everything from diesel to explosives going through the roof. All this came to a head in the first half of the year, when Rioās profit dropped 29% from the record haul of the same time in 2021. Why Should I Care?For markets: Will Rio go shopping?
This was such a blow, in fact, that Rio said it would pay out ājustā 50% of its profits to its shareholders in the form of dividends ā down from the 65% average of the past three years. Itās still the minerās second-biggest half-year payout on record, mind you, and itāll leave Rio with plenty of spare cash on its balance sheet. Some analysts even think itāll start buying up other, less financially secure companies in the sector, which isnāt outlandish: the company showed itās keen to double down on the green energy transition by buying a lithium mine last year, as well as offering to buy out copper producer Turquoise Hill Resources entirely.
The bigger picture: Itās only getting tougher.
Then again, Rio might want to hold onto that nest egg. For one thing, the economic slowdown is only expected to get worse, with the International Monetary Fund this week slashing its 2022 global growth forecast for a third time to 3.2% (tweet this). And for another, Goldman Sachs thinks the supply of Rioās all-important iron ore will overtake demand in the second half of this year. | 