Rio Tinto Earnings: Sound Result Due to Iron Ore, the Main Driver of Earnings

No-moat Rio Tinto’s adjusted net profit after tax fell 12% to USD 11.8 billion or USD 7.21 per share, about AUD 10.92, driven by lower aluminum prices and higher unit cash costs. Adjusted EBITDA of USD 23.9 billion was 9% below 2022 but broadly in line with our estimate. The Pilbara iron ore business had a solid year. Average iron ore prices of USD 108 per metric ton were modestly higher than in 2022. Along with 4% higher volumes of about 280 million metric tons and modestly lower unit cash costs of roughly USD 22 per metric ton, close to our forecast, iron ore EBITDA rose 7%. The iron ore business continues to drive Rio’s earnings, comprising 84% of 2023 EBITDA. While Rio’s free cash flow of USD 7.7 billion fell 15% lower, the balance sheet remains very strong. Net debt of about USD 4.2 billion is minimal, roughly 0.2 times EBITDA. Rio will pay a fully franked final dividend of USD 2.58, about AUD 3.91, in April. Total 2023 dividends of USD 4.35 (AUD 6.59) were down 12% on lower earnings, but the 60% payout ratio is at the top end of Rio’s target.