Rio Tinto forks out big shareholder payout as iron ore giant boosts production

Rio Tinto meets consensus expectations, issues $10.7 billion of payouts for 2023

The mining giant expects to see costs lift at its Pilbara iron ore mines in 2024

CEO Jakob Stausholm remains positive on the long term outlook for lithium despite the price crash

Rio Tinto (ASX:RIO) shareholders will share $6.4 billion in payouts from its final dividend, taking returns to $10.7 billion for the year after Rio posted a US$10.1b ($15.4b) profit for 2023.

Down 12% on the US$4.92 per share paid out for 2022, Rio’s US$4.35 per share payout incorporating both its interim and final divvie came after profits fell 19% from US$12.4b last year.

It represented a 60% payout ratio compared to earnings of US$11.8b (down 12% on US$13.4b in 2022).

That came with sales revenue down 3% to US$54b and underlying EBITDA off 9% to US$23.9b, with lower aluminium, copper and industrial minerals prices countering a lift in iron ore prices and 3% rise in copper equivalent output.

But iron ore costs have also been rising, hitting US$21.5/t and expected to lift again to US$21.75-23.50/t in 2024, when it is aiming to produce 323-338Mt across its Pilbara iron ore operations.

Copper costs however are expected to drop from US195 cents to 140-160c as increased production flows from the Oyu Tolgoi mine in Mongolia and Kennecott smelter in the United States.

Commodity price movements accounted for US$1.5b of the miner’s drop in earnings, with operating costs a US$1.4b hit.

The payout ratio, dividend, earnings and EBITDA numbers were all basically in line with consensus estimates.

Rio also announced the end of Simon McKeon’s run as senior independent director, one of a number of board members whose appointment pre-dated the Juukan Gorge scandal.

Appointed in January 2019 and the senior independent director since September 2020, McKeon will not seek re-election at Rio’s AGM in May.

Of Rio’s current board members only CEO (and former CFO) Jakob Stausholm, Simon Henry and Sam Laidlaw were on the committee at the time of the incident which claimed the head of then CEO JS Jacques.

Rio still sold on lithium

There were few surprises in the financials, with little in the way of guidance or project changes.

That means Rio remains on track to produce its first commercial lithium from a 3000tpa starter plant at the Rincon brine project in Argentina this year.

The project has already seen cost overruns, with the pilot’s budget upped substantially from US$140m to US$335m last year.

Since then lithium chemical prices have fallen hard to cyclical lows of under US$15,000/t for chemicals and US$850/t for spodumene concentrate.

But Stausholm said the pain being felt across the critical metals space including in lithium and nickel was not putting the company off its long-term enthusiasm for the battery metal.

“I think I have consistently always said that we believe the lithium price will be very volatile because as you can see … (sometimes) it is the flavour to buy an EV and sometimes it’s not so the only thing that matters to us is what is the long term average price, not what the price is in the quarter,” he said on a media call on Wednesday.

“And if you think about it right now, we are building a lithium mine in Argentina. So as long as we’re not producing it doesn’t matter what the lithium price is.

“I think more important is are we learning something around battery materials? And I do think so because what you see, particularly in China right now, is that more and more production is going towards LFP batteries that has got a lot of lithium, but has not got cobalt and nickel in them.”

RIO has largely focused its attention in lithium on earlier stage investments since its Jadar mine in Serbia was put on ice in early 2022 amid widespread community opposition.

Those include farm-ins with Canadian lithium juniors as well as local tiddlers Everest Metals Corporation (ASX:EMC) and Charger Metals (ASX:CHR).

But Stausholm still thinks established miners are too pricey to justify M&A, despite a big dive in prices which has brought lithium equities back to Earth.

“I’ve seen the prices on lithium companies have come down, but they’re probably still on the high end so it’s not something that I get super excited about at this point in time,” he said.

Stausholm said the lesson of the battery metals collapse was the importance of owning projects that were low on the cost curve, saying he believed Rio was developing a ‘very good lithium project’ at Rincon.