Rio shareholders brace themselves for tomorrow’s report

Downwards prices, poor assets sales and a tough year on costs will reflect in tomorrow’s figures.

a woman

Shareholders in Rio Tinto (ASX: RIO) and BHP (ASX: BHP) are readying themselves for a dive in profits as the companies battle with lower commodity prices and huge costs.

According to analysts, BHP shareholders will be hardest hit when its full-year report is released later this month, tipping a 26% drop in profits. Market consensus is that the company will report a profit of just US$12.5 billion compared to US$17.1 billion last year.

Meanwhile Rio’s shares aren’t going to be spared when the company’s releases its half-year report tomorrow. Although revenue is expected to climb slightly when compared to first-half 2012, underlying earnings are expected to drop between 18% and 18.6% to between US$4.2 billion and US$ 4.3 billion. EBITDA is also expected to drop by 5% when compared to the previous corresponding period (pcp).

Lower earnings forecasts are largely the result of poor commodity prices and costs of repairing a huge landslide at Kennecott’s Bingham Canyon Mine. However, tomorrow’s report will focus largely on the miners’ cost reduction, capital expenditure guidance and the sale of a number of key assets.

Deutsche Bank predicts about half of the $2 billion of the cost savings targeted by CEO Sam Walsh will be met. Citi says a major focus of the report will be the sales of Rio’s stake in Iron Ore of Canada (IOC), thermal coal mines and its aluminium business.

However, a number of Rio’s potential suitors have today pulled out of the sale for Rio’s IOC stake, including Apollo, Blackstone and Glencore. Rio said the second round bids were below the company’s target price but indicated that Canada’s largest diversified mining company, Teck Resources is still a potential buyer.

Foolish takeaway

The price of iron ore is expected to fall as more projects come online between now and 2015, this will lower the spot price of the steel making ingredient throughout Asia and beyond. Investors should take caution before making the commitment to buy stocks in pure plays like Atlas Iron (ASX: AGO) or Fortescue (ASX: FMG). Instead, investors could avoid the risk and look beyond mining stocks to receive better dividends and safety.

Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

More on ⏸️ Investing