The Rio Tinto Limited (ASX: RIO) share price is in focus this week as the iron ore giant is scheduled to report its FY21 result.
Rio Tinto’s financial year runs for the 12 months to December 2021.
Rio Tinto’s incoming HY22 result
Iron ore mining giant Rio Tinto is expected to release its result tomorrow.
This is actually one of the biggest iron ore miners in the world. In the 12 months to 31 December 2021, it shipped 321.6 million tonnes of iron ore. That’s a lot of iron ore. In the December quarter, its iron ore shipments were 84.1mt.
What to expect from the report
Rio Tinto is a commodity business. That means it’s dependent on the price of the commodity that it produces, as well as how much it produces.
The amount of Rio Tinto iron ore shipments were down 3% to 321.6mt, whilst production was down 4% to 319.7mt.
Iron ore prices were very volatile over Rio Tinto’s 2021 financial year.
We already know that the half-year result was strong with operating cash flow increasing by 143% to US$13.66 billion. Net earnings climbed 271% to US$12.3 billion. The Rio Tinto board decided to declare an ordinary interim dividend of US$3.76 per share, an increase of 143% and also paid a special dividend of US$1.85 per share.
Whilst Rio Tinto and BHP Group Ltd (ASX: BHP) are not the same business, I think the fact that BHP reported a solid FY22 half-year result (covering the same time period as Rio Tinto’s second half) is a good sign. BHP said that its realised price for iron ore was 9% higher to US$113.54 per wet metric tonne. A higher commodity price should be a boost for Rio Tinto’s profit. However, Rio Tinto did see a drop in production, so we’ll have to see how the profit performs.
The Rio Tinto dividend
Rio Tinto’s operating earnings are likely to be strong again. Though the iron ore price has been drifting lower, so I’m not sure if its dividend will be increased significantly. It has also been busy with announcements. It has entered into a binding deal to buy the Rincon lithium project in Argentina for $825 million.
The Oyu Tolgoi project and Ranger rehabilitation project could also need capital allocations by Rio Tinto.
I don’t think that the iron ore price is going to get to US$200 per tonne any time soon. It may not even get to US$150 per tonne for a while after more official Chinese action to lower the price.
Final thoughts on the Rio Tinto share price
Whilst the Rio Tinto share price has gone up 18% this year, I’m not sure if it can go much higher with pressure on the iron ore price.
I’m supportive of the move into lithium, but it’ll be interesting to see what Rio Tinto says about the under-pressure Jadar European lithium project. Its environmental approval has been blocked by Serbia based on local environmental concerns. Is that project now dead in the water?
If the iron ore price were to drop under US$100 again, the Rio Tinto share price could get interesting. But I prefer iron exposure from Fortescue Metals Group Limited (ASX: FMG) with its green economy initiatives.
