The Rio Tinto (LSE: RIO) share price has slumped so far in 2024. Despite a brief rally that peaked in May, it’s still down 15% year to date.
Well, it was until market close on 30 July. It recovered a couple of percent in early trading on Wednesday (31 July), after the mining giant posted H1 results.
Interim results
A couple of weeks after giving us a Q2 production report, Rio has followed up with what it calls a “consistent, stable financial performance as we ramp up our investments in growth” in the first half.
The company saw just a 1% rise in sales reveue, to $26.8bn. But that gave a 3% boost to underlying EBITDA, which reached $12.1bn.
Bottom-line profit after tax rose by a very nice 14%, to $5.8bn, though underlying earnings per share (EPS) is flat. The dividend was kept flat too, at 177 cents.
Growth prospects
CEO Jakob Stausholm highlighted Rio’s future growth prospects. He spoke of “an inflection point in our growth, with a step change from our aluminium business and consistent production at our Pilbara iron ore operations.“
He also enthused about the company’s copper equivalent production being on track to grow by around 2% this year, adding that “our ambition is to deliver around 3% of compound annual growth from 2024 to 2028 from existing operations and projects.”
These are key commodities, for sure. But for me the main attraction of Rio Tinto is the diversify of its products. It’s not tied to the price of any specific commodity, as a miner only digging for one material would be.
That includes lithium, for which demand could soar as electric vehicles come to dominate. Rio Tinto’s Rincon lithium project is, it seems, proceeding at pace.
Commodities risk
One main risk with an investment like this was shown in Rio Tinto’s Q2 production update on 16 July. Technical problems led to lower production of iron ore from Pilbara. Alumina production fell 10% due to a pipeline breakage.
And the firm dropped its full-year copper guidance to around the bottom end of the 660,000 to 720,000 tonnes range.
Copper prices have fallen back since May, though still up strongly over five years. Iron ore has dipped a bit in five years, though it’s way down than its 2021 peaks.
Overall, the profits from companies like this are hostage to global prices. And those have been very volatile in recent years.
Dirst cheap?
As a result of uncertainties like this, I reckon the Rio Tinto share price could continue to be volatile. We’re looking at a forecast price-to-earnings (P/E) ratio of only nine. But there’s no real drop on the cards in the next couple of years, in what can be a very cyclical stock.
The forecast dividend yield of 6.9% could make the stock look very cheap. But Rio’s dividend does rise and fall a lot more than most.
So, there’s a good deal of uncertainty. But I’d say any long-term investor should consider having a major miner like Rio Tinto in their portfolio.
