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He Rio Tinto The (LSE:RIO) share price has fallen so far in 2024. Despite a brief rally that peaked in May, it is still down 15% year-to-date.
Well, that was the case until the market closed on July 30. It recovered a couple of percentage points in early trading on Wednesday (July 31), after the mining giant published its first-half results.
Provisional results
A couple of weeks after giving us a second quarter production report, Rio has followed up with what it calls a “Consistent and stable financial performance as we increase our investments in growth” in the first half.
The company posted a mere 1% rise in sales revenue to $26.8 billion, but that gave a 3% boost to underlying EBITDA, which reached $12.1 billion.
Net profit after tax rose 14% to $5.8 billion, although underlying earnings per share (EPS) remained unchanged. The dividend was also unchanged at 177 cents.
Growth prospects
Managing Director Jakob Stausholm highlighted Rio's future growth prospects. He spoke of “a turning point in our growth, with a turnaround in our aluminium business and consistent production at our Pilbara iron ore operations.“
He was also encouraged by the fact that the company's copper equivalent production is on track to grow by around 2% this year, adding that “Our ambition is to generate around 3% compound annual growth between 2024 and 2028 from existing operations and projects..”
These are key commodities, no doubt. But for me the main attraction of Rio Tinto is the diversification of its products. It is not tied to the price of any specific commodity, as would be a mining company that was looking for just one material.
That includes lithium, demand for which could soar as electric vehicles become dominant. Rio Tinto's Rincon lithium project appears to be progressing apace.
Raw material risk
One of the main risks of such an investment was highlighted in Rio Tinto's second quarter production update on 16 July. Technical problems led to lower iron ore production in the Pilbara. Alumina production fell by 10% due to a pipeline break.
And the company lowered its full-year copper guidance to near the lower end of the 660,000 to 720,000 tonne range.
Copper prices have retreated since May, although they are still up strongly over the past five years. Iron ore is down slightly over five years, although it is well below its 2021 peaks.
In general, the profits of companies like this are subject to global prices, which have been very volatile in recent years.
Very cheap?
As a result of uncertainties like this, I think Rio Tinto's share price could remain volatile. We're looking at a forecast price-to-earnings (P/E) ratio of just nine. But no real downside is forecast over the next few years in what may be a very cyclical stock.
The expected dividend yield of 6.9% might make the stock look very cheap, but Rio's dividend rises and falls much more than most.
So there is a lot of uncertainty, but I would say that any long-term investor should consider having a major miner like Rio Tinto in their portfolio.
