Rio Tinto’s Q4 2016 Earnings Review: Recovery In Iron Ore Prices And Success Of Cost Reduction Initiatives Translate Into Improved Earnings

by Trefis Team
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Rio Tinto
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Rio Tinto released its full year 2016 earnings results and conducted a conference call with analysts on February 8. [1] As expected, a recovery in iron ore prices and the company’s cost reduction initiatives boosted its earnings.

Q4 2016 Earnings Review

Iron ore prices recovered in 2016, reversing the declines seen over the previous two years. Production curtailments by high-cost producers in response to an extended period of subdued prices helped lower the extent of the prevailing global oversupply. In addition, the Chinese government’s fiscal stimulus package targeted at the infrastructure and construction sectors boosted the demand outlook for iron ore from China, the world’s largest iron ore importer, translating into a sharp recovery in prices towards the end of 2016. [1] In addition, Rio Tinto’s technology-driven productivity improvement initiatives aimed at boosting reliability and utilization rates of its facilities, helped rationalize operating costs and boost the company’s bottom line. [2]

Going forward, the company plans to continue the implementation of its productivity improvement initiatives. The company realized around $1.6 billion out of the $2 billion in cash cost savings targeted for 2016 and 2017 over the course of 2016, with the balance expected to be realized this year. [3] In addition, Rio Tinto continues to put its philosophy of disciplined capital allocation into practice, announcing the sale of its wholly-owned coal mining subsidiary, Coal & Allied. [4] The company reiterated its commitment to deploy capital into more profitable areas including projects in its iron ore, copper, and aluminum mining operations. [1] The company management is endeavoring to restructure its operations in order to maintain profitability over the entire commodity cycle. Given the recent actions taken by the company management, it is taking the right steps towards achieving its objective.

Have more questions about Rio Tinto? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Rio Tinto

Notes:

  1. Rio Tinto’s Q4 2016 Earnings Transcript, Seeking Alpha [] [] []
  2. Rio Tinto Investment Seminar Presentation, Rio Tinto Website []
  3. Rio Tinto’s Q4 2016 Earnings Presentation, Rio Tinto Website []
  4. Rio Tinto agrees sale of Coal & Allied, Rio Tinto News Release []
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