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UPDATE 4-Rio Tinto touts 'V-shaped' China recovery as it beats profit expectations

Wed, 29th Jul 2020 07:46

* Pays record H1 dividend of $1.55 a share; no special
payout

* Jacques to front Australian senate over caves blast next
week

* Rio sees Guinea's Simandou being developed 'with or
without us'
(Adds fund comment, graphic)

MELBOURNE - July 29 (Reuters) - Rio Tinto said on
Wednesday it saw a sharp V-shaped recovery in China as stimulus
spurred industrial activity, helping its first-half profit
handily beat market expectations.

Rio Tinto is the first of the major iron ore miners to
report results from a first half marked by coronavirus-induced
disruptions but also by high iron ore prices.

"We believe that China has enjoyed a very steep V-shaped
recovery," CEO Jean-Sébastien Jacques said on a call.

"Today we see it as that the demand for steel and iron ore
in China is very, very strong and order books are full," Jacques
said.

That rebound helped it report half-year underlying earnings
of $4.75 billion, beating a consensus of $4.36 billion from 16
analysts compiled by Vuma.

Iron ore accounted for 96% of Rio's underlying earnings. Rio
is the world's largest iron ore miner.

It declared a record dividend of $1.55 per share, up from
$1.51 last year and bang on expectations but refrained from
paying out a special dividend as some analysts had hoped,
suggesting a more cautious view for the remainder of the year.

"Rio's resilience and the very strong balance sheet supports
the small increase in the dividend," said Richard Marwood,
senior fund manager at Royal London Asset Management, which
holds shares in the miner.

"Commodity prices will be driven by the shape of the global
economic recovery, but Rio is well placed to cope with whatever
comes next, given its strong finances and high quality asset
base."

Rio's London-listed shares were up 1.5% by 1040 GMT,
outpacing a 0.6% rise in the wider market.

The demand recovery story outside China remained uncertain,
Jacques said.

"In other major economies like the U.S and Europe, the
recovery is much more tentative," he said.

"Big questions remain over the trajectory of consumer
spending globally in the face of significant levels of
unemployment."

Rio said in its earnings statement that it had taken a $1
billion impairment charge, largely related to four of its
aluminium smelters as well as its Diavik diamond mine in Canada.

High power prices forced Rio to close its New Zealand
smelter this year and to ask Icelandic regulators to address
what it called discriminatory power pricing for its ISAL
smelter.

Its Australian aluminium businesses remains under review.

“We are having a lot of private conversations for all our
smelters in Aus. Those are challenging conversations, there is
no doubt about it, and we are working hard in order to find a
solution,” Jacques said.

Free cash flow tumbled 28% as the miner spent more on
development projects and tax payments, but analysts at Jefferies
remained upbeat about its prospects.

Higher metal prices and relatively stable unit costs should
help free cash flow improve sequentially in the second half,
they said, and suggested Rio could pay a special dividend with
its full-year results.

"We have continued to pay the same level of taxes, same
level of employment, the same dividend," Chief Financial Officer
Jakob Stausholm told Reuters.

"But for a special dividend, it’s better to wait a moment to
make such considerations."

Jacques said he will front an Australian Senate enquiry next
week over Rio's destruction of two sacred caves of historic
significance in Western Australia. The results from a separate
board-led review into the incident is due to conclude in
October.

Rio expects Guinea's giant Simandou iron ore reserve to be
developed, as China looks to diversify its sourcing away from
the Australians and Vale in Brazil.

Guinea in June signed an agreement with a consortium for
the development of the giant reserve after it won a $14 billion
tender last November to develop the blocks which hold more than
2 billion tonnes of high-grade ore.

(Reporting by Shashwat Awasthi and Shriya Ramakrishnan in
Bengaluru, Melanie Burton in Melbourne and Zandi Shabalala in
London; Editing by Kim Coghill and Jason Neely)

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