A near halving of net profit is almost always a sobering affair. But I think someone forgot to tell that to Rio Tinto Limited's (ASX: RIO) shareholders.
The mining giant's London-listed stock jumped more than half a percent at the start of trade after management reported a 43% plunge in underlying net profit to $US2.92 billion ($3.98 billion) as a crash in commodity prices wiped $US6.4 billion off its topline in the six months to June 30, 2015.
Who know's where it will close but investors were taking the glass half full view of the result for now even though the halving of the iron ore price squeezed Rio Tinto's earnings before interest, tax, depreciation and amortisation (EBITDA) margin to 38% from 41%.
The fact is Rio Tinto has given the market a number of things to be grateful for. Firstly, its interim net profit is 17% above the consensus forecast reported on Bloomberg.
Just about all of that came from productivity and efficiency gains with management increasing its full year cost savings target to $US1 billion from $US750 million.
Its chief executive Sam Walsh is also on a front foot to ease concerns about the sustainability of its dividend as Rio Tinto upped its interim dividend by 12% to US107.5 cents despite the big drop in profit.
Rio Tinto's results announcement started with a quote from Walsh highlighting the miner's post-tax operating cash flows of $US4.4 billion, which he was at pains to point out were more than enough to cover sustaining capital expenditure of $US1.2 billion and dividend payments of $US2.2 billion.
That still leaves a cool $US1 billion for Rio Tinto to leave in reserve, which could be deployed to stage a takeover defence as there are still media reports that Swiss miner Glencore is still circling the company.
If Glencore was looking for any weakness in Rio Tinto's result to exploit, and it probably was, the Swiss miner would be disappointed as I think most analysts will commend Walsh for doing a good job in a challenging environment when they publish an earnings update on the miner.
Don't get me wrong, I am not saying you should expect a raft of broker recommendation upgrades on the stock as the outlook for Rio Tinto remains difficult at best even though management commented that the cyclical weakness is passing.
However, it's hard to refute Walsh's assertion that Rio Tinto is among the best placed to weather the commodity storm and I have little doubt that when the cycle turns (and it's not a question of "if" but "when"), those who have not bought the stock at current levels will be kicking themselves.
All you need is a steel stomach. Luckily, the cost of the metal is so much more affordable now.
