2013 underlying earnings of $4.2 billion down 18 per cent reflect lower average market prices and a higher effective tax rate, partly offset by record iron ore shipments and cost savings momentum.
- Net earnings of $1.7 billion include non-cash exchange losses of $1.9 billion and a $0.3 billion write-off of waste stripping costs and damaged equipment at Kennecott Utah Copper following the pit wall slide at Bingham Canyon in April.
- 15 per cent increase in interim dividend to 83.5 cents per share.
Actions underway to achieve the three priorities for 2013:
- Cost reductions gathering momentum. $1.5 billion of total cost improvements achieved, including $977 million of operating cost improvements and $483 million from lower exploration and evaluation
- Net headcount reduction of 2,200 since 30 June 2012 across the Group, after taking into account 1,800 new roles in iron ore to support the expansions.
Operations performing well with record first half iron ore production and stronger copper volumes, with the recovery at Bingham Canyon advancing faster than previously expected.
Strengthening our balance sheet
- Capital expenditure reduced by nine per cent to $7 billion. 2013 capital expenditure is expected to be around $14 billion, 20 per cent lower than the peak capex of 2012.
- Funding and development of the phase 2 Oyu Tolgoi underground expansion delayed until discussions with the Government of Mongolia are concluded on a range of matters and a new timetable has been agreed.
- Oyu Tolgoi copper-gold open pit mine and concentrator in production and consistently operating at more than 80 per cent of design capacity.
- Phase one Pilbara iron ore expansion to 290 Mt/a on budget and on time to deliver first tonnes during September 2013.
- Argyle diamonds underground mine commissioned in April 2013.
- Kestrel coking coal mine in production and ramping up in the second half of 2013.
- $1.9 billion of non-core business divestments announced or completed to date in 2013.
Six months to 30 June
(All amounts are US$ millions unless otherwise stated)
The financial results are prepared in accordance with IFRS and are unaudited. 1Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here to provide greater understanding of the underlying business performance of the Group’s operations attributable to the owners of Rio Tinto. Net earnings and underlying earnings relate to profit attributable to owners of Rio Tinto. Underlying earnings is defined and reconciled to net earnings on page 12. Comparative information has been restated to reflect a number of new accounting standards. Please see the note on ‘Accounting policies’ on pages 48 to 54.
Chairman Jan du Plessis said “Our business has demonstrated considerable resilience against a backdrop of continuing market volatility. Cash flows from operations were strong, driven by our cost savings programmes but lower prices and a higher tax rate led to a reduction in underlying earnings to $4.2 billion in the first half of 2013.
“Our strategy to invest in and operate large, long-life, low-cost, expandable operations remains unchanged. Sam and his team are seeking to simplify the portfolio through the divestment of non-core assets but only where we can realise value for shareholders. Our interim dividend increased by 15 per cent, in line with our policy and reflecting the increase in our 2012 full year dividend.”
Chief executive’s comments
Chief executive Sam Walsh said “We are seeing good early results of our business performance initiatives in our pursuit of greater value for shareholders. We have achieved $1.5 billion in total cost reduction efforts in the first half, with $977 million from operating cost savings and $483 million from lower exploration and evaluation spend. This has driven strong operating cash flows, on a par with the first half of 2012, despite the weaker prices for most of our products. Capital expenditure has been reduced, approved growth projects are on track and operations are performing well. We have set ourselves firmly on the path toward becoming a leaner, more tightly-run business.
“Across the group, we are focused on improving performance at every location. Our cost saving programme is gathering momentum and we have more than 1,500 separate initiatives that are helping us reduce costs and preserve margins, even in a climate of lower prices. We have driven down our unit costs by more than nine per cent compared with the first half of 2012.
“The medium-term economic outlook remains volatile with a broader range of outcomes now possible. Chinese economic growth has decelerated so far this year and is unlikely to recover significantly in the second half, but we do not expect a hard landing.
“This global economic volatility only serves to highlight the need to build a stronger and more resilient business. I have reinforced our capital allocation processes to ensure that we are only investing in the best opportunities. We have reduced capital expenditure from the peak level of last year and we expect it to be 20 per cent lower in 2013.
“We have made steady progress in improving our portfolio this year, with $1.9 billion of divestments announced or completed to date, including a binding agreement for the sale of our interest in Northparkes and recently completed sales of Palabora and Eagle. As always, any decision to sell is driven by value. For this reason, we have decided to retain our diamonds businesses, which are high-quality assets.
“Following a comprehensive review we have also determined that the divestment of Pacific Aluminium for value is not possible in the current environment and it will be reintegrated into the Rio Tinto Alcan group. Our global aluminium business is one of the best performing in a challenging industry. We continue to make good progress to transform our businesses through divesting or closing non-core assets, business improvement and targeted investment. But we need to do more to improve performance and returns.
“And we are delivering our approved growth projects. A major milestone was achieved in July, when Oyu Tolgoi started shipping concentrate to customers from its open pit copper and gold mine in Mongolia. Completion of the first phase of this project, at a time when undeveloped quality copper assets are scarce and the medium-term outlook for copper continues to be strong, is a significant achievement. We have recently announced that we will delay all funding and work on the underground expansion of Oyu Tolgoi until discussions with the Government of Mongolia on a range of matters are successfully concluded and a new timetable has been agreed. In the meantime, we will focus on the continued safe, efficient and cost-effective management and ramp-up of the open pit mine and sustained export of Oyu Tolgoi concentrate to customers in order to deliver the associated benefits for all stakeholders.
“In the Pilbara, we are poised to commission the first phase of our major iron ore expansion to 290 million tonnes a year. We have started ore stacking at the Cape Lambert expansion and will commence shipping during September. Completion of this major project on budget and ahead of the original schedule is a tremendous achievement.
“I believe that we are well on track to build a stronger Rio Tinto. We are making good progress against our clear commitments and remain focused on the pursuit of greater value for our shareholders.”