Rio Tinto and BHP profits expected to fall sharplyAugust 20th will be an important date (BHP release their results)
Rio Tinto and BHP profits expected to fall sharply
Monday, 05 Aug 2013
The Australian reported that more evidence that the mining boom has run out of puff is on its way as industry leaders Rio Tinto and BHP Billiton set about reporting sharply lower profit results, along with a new zeal for cost cutting and capital discipline in response to weaker commodity prices and concerns about global economic growth.
Massive profits from iron ore will be a feature of the earnings reports. But the resource's price strength is also seen by most in equity markets as the Achilles heel of the two biggest diversified miners, given the broad expectations that strong supply growth will eventually undercut prices.
Rio is most exposed to that scenario and starts the ball rolling for profit season for the big end of town with its June half interim report, to be released on Thursday. One group of analysts expect underlying earnings of USD 4.23 billion down 18.6% from USD 5.2 billion in the previous corresponding period.
Rio's reliance on iron ore will come under new focus in the result, given the expectation by Deutsche that the division's contribution to net profit after tax at USD 4.87 billion (consensus is USD 4.51 billion) will actually be more than the expected underlying profit. Losses in aluminium and energy (uranium and thermal coal) provide the explanation. JPMorgan is also expecting underlying earnings of USD 4.3 billion.
It said that the key focus for investors in Rio's results would be commentary about the timing of its USD 5 billion commitment to build supporting mine capacity to take Pilbara iron ore production to an annual rate of 360 million tonnes and progress on Rio's plan to extract USD 3 billion in cost savings on a sustainable basis from 2015.
Despite the expected 18.6 per cent profit fall, interim dividend is expected to increase from USD 72.5c a share in the previously corresponding period to USD 83.5c a share. That would be in keeping with Rio's normal practice of endeavouring to pay an interim dividend that is half of the previous year's annual payout.
BHP follows Rio with its full June year profit report on August 20th 2013. There are mixed feelings about the likely result but the broad expectation is that profit will be down by 26% from USD 17.1 billion to about USD 12.5 billion.
Under BHP's progressive dividend policy, annual dividend is nevertheless expected to increase from USD 1.12 a share to as much as USD 1.17 a share. Losses in aluminium and nickel, and lower earnings in petroleum, coal and iron ore (because, unlike Rio, the result captures the short lived collapse in iron ore prices in September last year) are behind the fall. Investors will be looking for an update on BHP's intentions towards the Jansen potash project in Canada.
Source - The Australian
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