First out of the blocks with its results, Rio Tinto PLC (LSE:RIO) has set the tone for the rest of the major miners, with profits and dividends slashed, as well as a warning that it is not likely to achieve its decarbonisation target.
For its traditional investor base, there was disappointment as profits came in lower than expected in the first half of the year against a backdrop of China's slow economic recovery, with sales revenue down 10.4% and earnings and dividends shrinking 34%, with numbers almost half those from two years ago.
These results are likely to set the tone for its fellow mining giants, Bloomberg observed, and for those investors who have believed the hype that the mining sector has embraced greener policies, there was also disheartening news that they will hope does not set the tone for the wider sector.
The Anglo-Australian giant warned that its target of reducing direct and indirect emissions 15% by 2025 will not be achieved because of “underlying emissions growth as our production plans evolve”.
In other words, perhaps, there are bigger priorities and so the target was dumped.
Backing this up, the company revealed that it had spent less capex on decarbonisation projects during the past half year than anticipated, and said it would only now be able to meet the 2025 target if used carbon offsets. (At least it was honest, as offsets are mostly used as a tool to appear greener than you are.)
It had unveiled the emissions targets in 2021 with much fanfare, with new boss Jakob Stausholm hailing the "dramatic" increase in the targets, which include a 50% reduction in scope 1 and 2 emissions from operations by 2030, more than triple the previous target.
The climate action plan received 84% of votes in favour at its annual meeting the year after, with 15.7% of votes opposing.
Rio's scope 1 and 2 emissions, which cover carbon emitted directly from its own operations and from the energy it buys in, are dwarfed by its scope 3 emissions, which are mostly comprised of those generated when Rio’s iron ore is processed into steel.
These are so large as to even put Australia’s annual national emissions in the shade.
Yet the FTSE 100-listed group boasted in its results statement of "impeccable ESG", which included a new demonstration plant in Sorel-Tracy, Quebec to reduce emissions from smelting iron and titanium, a transition to renewable diesel for heavy machinery at an open pit mine in California, and an agreement with the world's biggest steelmaker, China Baowu, to "explore a range of industry-leading new projects in China and Australia to help decarbonise the steel value chain".
Financial results also not good
Results highlighted softer commodity prices across major segments, analyst John Meyer at SP Angel said.
Iron ore earnings fell 6% as an 11% drop in prices was partly balanced out by higher volumes, aluminium EBITDA plunged 60% as prices fell 25% on the back of weaker demand from western markets partly offset by a recovery in demand in China where inventories reached a seven-year low, and copper EBITDA dropped 29% on the back of an 11% drop in prices as well as a decline in copper production.
"Simandou is the big variable," said Ben Davis at broker Liberum, with the company now expecting final approvals from the giant iron ore project in Guinea later this year, with around another US$500m of capex in the second half.
The world’s largest untapped iron ore deposit, where final approvals are expected "later this year", is being developed in partnership with Guinea's government, China's state-run aluminium group Chalco and the International Finance Corporation arm of the World Bank.
Rio management guided to capex lifting materially from US$7bn this year to what is expected a share of capital investment "up to $10.0 billion per year, including up to $3.0 billion in growth per year, depending on opportunities" in 2024 and 2025.
First production across Simandou is expected from 2026, though not necessarily from the Rio Tinto blocks, Davis said, as its Chinese partners move ahead with the rail infrastructure.