Rio Tinto issued a broadly positive set of first quarter production numbers last night. Iron ore production increased by 2.3% to 77.8 million tonnes, which was a welcome rebound from the fall in output in last year’s final quarter.

Despite the health emergency, the group maintained its production guidance for iron ore, aluminium, alumina and bauxite. The group cut its output forecast for mined and refined copper.

Rio confirmed that all its major projects have now been impacted by the pandemic. The mega miner said that demand from China is starting to recover, but when it comes to the rest of the world, the outlook remains uncertain. Given the current climate, Rio has cuts its capital expenditure budget from $7 billion to $5-$6 billion. Seeing as metal prices are likely to remain relatively weak in the short-to-medium term, it is prudent to curtail its expansion plans.

Coronavirus fears hit Rio Tinto share price

Rio Tinto’s share price took a knock in January when the coronavirus crisis took hold in China. The nation is the largest importer of minerals in the world, so as soon as traders got wind of the health emergency, commodities stated to come under pressure, hence the share price slide. As the crisis spread around the world, the selling pressure intensified.

In February, the mining giant posted its full-year financial figures. Net profit fell by 41% to $8.01 billion. The slump in earnings was partly down to a $1.7 billion impairment charge It is worth noting the previous year’s profits were boosted by $4 billion relating to asset sales. Stripping out one-off items, profit increased by 18% to $10.37 billion, marginally topping estimates. A final dividend of $2.31 was declared, and that brought the full-year dividend to $3.82. A special dividend of $0.61 was paid out in September.

Given what is going on in relation to the pandemic, the firm is possibly regretting the generous cash returns. The balance sheet was very strong at the time of the annual figures being released so the company shouldn’t run into any issues, but shareholders won’t be holding out much hope for high dividend this year. Nowadays, any payout is seen as bonus, given how many firms have cancelled their payouts.    

Rio Tinto share price rebounds as China starts recovery

Overnight, China confirmed that its economy contracted by 6.8% in the first quarter, which was in stark contrast to the 6% growth it registered in the final quarter of 2019. Manufacturing and industrial production reports would suggest the Chinese economy improved in March as the lockdowns were lifted, but it will probably take the country a long time to get back to pre-crisis levels of economic activity.   

Rio Tinto’s share price found support below the 3,000p zone, and it has been rebounding since late March. Things are returning to normal in China, so that should help the mining titan in the months ahead, but Covid-19 related lockdowns in other parts of the world might disrupt operations. 

 

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