Is the Rio Tinto Limited (ASX: RIO) share price worth looking at after dropping 17% over the last month?
The iron ore price has been sinking with lower demand from China. The Chinese are the key customer of Australian iron ore. So, China has a very important role to play in the supply and demand relationship with iron ore.
But the Rio Tinto dividend has also gone ex-dividend, meaning new investors after the ex dividend date aren’t entitled to the FY21 interim dividend.
Rio Tinto’s big dividends
The mining giant declared an ordinary dividend of US$3.76 per share for the first six months of FY21 – that was an increase of 143% compared to the first half of FY20.
But the resources company generated so much profit, it decided to declare a special dividend of US$1.85 per share as well.
That meant the total dividend per share for the first six months was US$5.61, representing an increase of 262%.
Rio Tinto generated US$7.52 of underlying earnings per share (EPS) in the first half of FY21, so is still retaining some of that profit generated.
There were high growth numbers across the board, as Rio Tinto benefited from the profitability improvement from very high commodity prices.
FY21 half-year operating cashflow jumped 143% to US$13.66 billion. Underlying earnings increased 156% to US$12.17 billion and free cashflow soared 262% higher to US$10.2 billion.
The company’s balance sheet also improved significantly, going from US$664 million of net debt at 31 December 2020 to $3.14 billion of net cash at 30 June 2021.
One of the main headlines out of Rio Tinto recently is that it has committed $2.4 billion of funding for the Jadar lithium-borates project in Serbia, subject to receiving all relevant approvals, permits and licences.
It’s targeting first saleable production in 2026 and ramp up to full annual production of around 58,000 tonnes of battery-grade lithium carbonate in 2029.
Rio Tinto says that this positions it as the largest source of lithium supply in Europe. Jadar could supply enough lithium to power over one million electric vehicles per year.
Is the Rio Tinto share price a buy?
It depends on who you ask.
The broker UBS thinks Rio Tinto is actually a sell, with a price target of $102. It was expecting the iron ore price to fall substantially – and it already has fallen a lot. UBS believes that higher supply will lead to an even lower iron ore price over the coming months.
But then there are still buy ratings out there, such as Macquarie Group Ltd (ASX: MQG) which has a price target of $153 on the Rio Tinto share price. The resumption of operations at Richards Bay Minerals in South Africa is a positive for the broker, after stabilisation of the security situation around the mine, supported by the local government.