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Rio Tinto sounds a note of caution

Published: 08:37 03 Aug 2016 BST

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Slow road to recovery for the mining sector?

For those predicting a sustained rebound in the mining industry, here’s the gospel according to Rio Tinto PLC (LON:RIO), the Anglo-Aussie mining giant, which reported earnings earlier.

Rio provides an excellent insight into the opaque world of commodities and its take can best be described as guarded and perhaps slightly at odds with the strong recovery in equity valuations across the sector.

It said, yes, there has been a recovery in construction activity in China, the world’s second-largest economy and biggest importer of metals such as steel.

However Rio characterises this as a “credit-fuelled bounce” where the impact has been uneven.

“This has pulled prices up from the multi-year lows seen at the start of the year, as markets continue to rebalance,” the company said in its interim results statement.

“Growth in China has stabilised, but it is on a long transition path of slower and less commodity-intensive growth.

“Meanwhile the global economy seems stuck in a subdued low-productivity growth pattern which would indicate that continued caution is required for the second half of 2016.”

Rio’s shares opened unchanged after the company posted first half earnings down 47% on the same time last year at US$1.56bn, although the figure was in line with market forecasts.

It cut the dividend by 58% to 45 cents, but said the full-year payout would be no less than 110 cents – and it has fared better than rivals that have been forced to cancel payout to pay off debt.

Rio also re-affirmed cost and production guidance.

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