Mining giant Rio Tinto has reported an annual net loss of $866m (£596m) and kept dividends flat amid plunging commodity prices and the slowdown in China.
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Underlying earnings fell from $9.3bn in 2014 to $4.5bn, while sales plummeted from $47.6bn in 2014 to $34.8bn.
Changes to Rio’s dividend policy and planned new capital spending cuts of about $3 billion through 2017 may be enough to keep the ratings companies at bay, Evan Lucas, a Melbourne-based market strategist at IG, said by phone.
Three years ago, Rio Tinto had been forecasting that China would need at least 70 million metric tons more iron ore a year through 2020 to feed its industrialization.
Rio Tinto (RIO.AU) has acknowledged the harsh new reality of lower for longer commodity prices by dumping its progressive dividend policy, sharpening the focus on whether BHP Billiton (BHP.AU) will follow suit.
Statutory net loss of US$866 million, compared to a profit of US$6.5 billion in 2014, after taking US$5.4 billion in impairments, exchange losses, restructuring costs and other one-off items.
Rio chairman Jan du Plessis said the “continuing uncertain market outlook” meant that “maintaining the current progressive dividend policy would constrain the business and act against shareholders’ long-term interests”.
Still, Rio Tinto’s about-turn on its dividend policy is a surprise.
Chief executive Sam Walsh said 2015 was a tough year, but “2016 is shaping up to be even tougher” from the continued deterioration in the macro environment.
S&P said the negative watch was put in place with an eye on Thursday’s earnings release, warning of further downgrade “if the company does not take supportive measures amid the now weak commodity prices pressuring its cash flows”.
“Rio Tinto is feeling the pain of the commodity rout, and the collapse in the price of metals has hit the miner hard”, Madden said. It said cost savings totaled US$1.3 billion in 2015, well above an August projection of US$1 billion. And ratings agencies will be overjoyed that Rio is putting financial prudence ahead of maintaining the public relations exercise of retaining a profligate approach to dividends.
As a result, the progressive dividend policy has been abandoned and the maintained payout of US$2.15 in 2015 will fall to US$1.10 in 2016.
European shares fell on Thursday, led down by a renewed drop in banks and miners, with Societe Generale and Rio Tinto both under pressure after disappointing with their latest results.
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Australia’s ANZ reckons that iron ore prices will head back below $40 a tonne over coming months, down from the $45 a tonne that was being fetched before the Chinese New Year.
