Rio Halves Dividend as Dark Clouds Gather for Mining Giants

(Bloomberg) — Rio Tinto Group reported a sharp decline in first-half profit and cut its dividend in half, in the latest sign that a bonanza era of record returns across the mining industry is nearing an end.

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A year ago, the world’s biggest producers were enjoying super-sized returns, after key commodities like iron ore and copper surged. Now, profit margins are being squeezed as recessionary worries drive prices lower while costs across the sector are ballooning.

Rio reported underlying earnings of $8.6 billion in the first half, missing the average analyst estimate and down from a record $12.2 billion last year. It will pay a $4.3 billion dividend compared with $9.1 billion it returned in the same period in 2021. Rio’s shares fell as much as 4.6% in London.

For now, profitability remains strong by historical standards, and the biggest miners continue to pay out large amounts of cash to shareholders. However, producers including Rio and larger rival BHP Group have been warning about the threat of slowing global growth and surging energy prices. The company ended the first half with $291 million of net cash.

“Going into a period where there could be some headwinds on international markets, it’s not bad to have such a strong balance sheet,” Rio Chief Executive Officer Jakob Stausholm said on a media call. “Right now with the uncertainties we’re seeing, it’s probably the right thing to do.”

Rio’s dividend payout was 50% of its underlying earnings, well below the 75% it paid last year, when it also announced a special dividend. Stausholm said that would be something the company would consider at the end of the year: “It’s prudent to more focus on how we can pay the best possible dividend for the year.”

Read more: Mining Giants Warn of Tougher Times as World Demand Wavers

Other miners around the world have also reported increased challenges with inflation at their operations. Newmont Corp., the world’s biggest gold miner, plunged on Monday after the company reported disappointing earnings that were dragged down by surging costs. Copper miner First Quantum Minerals Ltd. said Tuesday its quarterly costs rose 8% from the first three months of the year.

First-half earnings were affected by lower commodity prices, higher energy costs and increased rates of inflation on operating expenses, Rio said.

Rio Tinto is the biggest iron ore producer and is facing growing pressure in its key business as the crisis engulfing China’s property sector and a wider global slowdown drives down prices. Goldman Sachs Group Inc. forecast that the market would flip to a surplus in the second half of the year and said prices could fall as low as $70 a ton.

For Rio, the pressure on earnings follows a tumultuous couple of years at the world’s second-largest miner, after a backlash over the company’s destruction of an ancient Aboriginal site in 2020 led to the departure of both its chief executive officer and chairman. Rio faces additional pressure to show it’s improving its culture after publishing an independent report earlier this year that found evidence of widespread sexual harassment, racism and bullying.

(Updates with CEO comments from fifth paragraph.)