Rio Tinto reported net loss in 2015 and reduced dividends payment, admitting that misread the demand for commodities in China and the potential return of the aggressive production expansion of iron ore from Australia to Canada in recent years. The company announced that will no longer be able to fulfill the promise to hold or slightly increased its dividend every year. This happens at a time when the prospects for the global economy deteriorated and prices of produced commodities are perennial lows. Rio Tinto probably will pay dividends of 2.15 USD per share, which is twice less than 2014.
The mining company reported net loss of 0.866 billion USD in 2015, compared to profit of 6.530 billion USD an year earlier. The profit was eaten by impairment charges of 1.8 billion USD for iron ore projects at Simandu in Guinea and by uranium assets in Australia and Canada. Rio Tinto also reported exchange losses and losses on derivatives trading of 3.3 billion USD. After excluding the one-off effects, the profit of Rio Tinto decreased by 51% to 4.54 billion USD.
Behind the problems for Rio Tinto stands the weakening growth of Chinese economy, especially in the key manufacturing and construction industries. The Asian country buys 60% of all iron ore traded by sea to produce steel and relies on Australia for most of its imports. In recent years, Rio has spent billions of dollars to expand mines and production. However, the low commodity prices and economy delay of China, might seriously hurt the company revenues in 2016.
During the current fiscal year, Rio Tinto intends to pay a total dividend of at least 1.10 USD per share, which represent total payment to shareholders of 2 billion USD. The mining company tries to cope with low commodity prices by strictly controlling the costs, including freeze of employees salaries globally. In 2015, the company succeeded to implement cost saving program worth 1.3 billion USD, which is above the forecasts for 1 billion USD. During the next two years, Rio Tinto has ambitious plans to cut another 2 billion USD.
Abandoning from dividends payment is contrasting the promises of the company CEO, but economy delay and low commodity prices forced the management to take serious actions to improve liquidity and cash flows. The net profit of Rio Tinto in iron ore division decreased by 45%, even after orders grew by 11%. The revenues from copper and coal fell by 27% yoy.