Production at Rio Tinto PLC (LSE:RIO) was broadly flat, year-on-year, according to chief executive Jakob Stausholm.
All to the good from the operational point of view, although things do look like they are coming off the rails at Simandou again.
But financially, it was a different story.
On every single metric, from cash flow to revenues to earnings, to dividend payouts, Rio’s numbers were all down.
Last year was a record, Stausholm pointed out.
And indeed, Rio Tinto was one of the major winners of the twin black swan events that we’ve experienced in the past couple of years: covid and the Ukraine war.
Covid caused governments, as is now their habit, to tip ever greater amounts of stimulus money into the world’s economies, with two main effects as far as Rio was concerned. The first was to create a massive pool of money that could be spent on infrastructure, and hence drive demand for all of Rio’s products. The second was to diminish the value of the dollar, and by natural inversion to push up prices of anything - like metals – that gets sold in dollars.
So were the record years were real in terms of demand, but perhaps not so real in terms of pricing.
And as for Ukraine, well that was always going to be short-term.
Yes, squeezing Russia out of the global economy was going to create shortfalls in supply all over the place, and companies that did have supply – like Rio – would benefit correspondingly.
But actually, the effects of President Biden’s plan to isolate Russia are far from clear. Could it be that it’s the West that’s now isolated from the rest of the world, rather than Russia. In these days of the rising power of China and India, who constitutes “the rest of the world” is an open question.
Either way, the post covid boom is now over, and the shockwaves from Ukraine are now dissipating.
It’s not Rio’s fault, but what we’re left with is a world where inflation is making everything more expensive, and investors and consumers alike are reluctant to commit to spending until the Fed can prove firstly that it can still control the dollar, and secondly that the dollar still matters.
A resolution to the war in Ukraine would be nice, too, before big spending commitments are made, since there seems to be a surprising insouciance in political circles in Washington and the West about the potential for nuclear war.
Would you invest with Armageddon hanging over you? Perhaps that’s over stating it, but why not make sure?
With all this in mind, then, it’s not surprising that a large chunk of the Western media have taken Rio’s weaker financial position as a harbinger of darker things to come. Will the other miners show similar declines in earnings and cashflow, as copper, iron ore and other metals prices continue weaker?
Almost certainly.
But how do we get out of this?
Proponents of MMT are still holding that the inflation we’re seeing is largely supply chain related, and that a couple more aggressive moves from the Fed ought to turn the situation around. If for any reason the situation in Ukraine eased too and gasoline prices fell, then, so the argument goes, we might well be out of the woods.
But what about all that QE money that’s still swirling around in the trough. The Fed’s planning to cut back its balance sheet to some degree, but not enough to calm those who argue that it was the money printing programme that caused a lot of these issues in the first place. Gold bugs typically fall into this camp, and if they’re right, then the pain might be set to continue for a lot longer.
The key question now is: how long will the recession last and not, as some pundits have floated this week at the behest of US government propagandists, whether we’ve got the definition of recession wrong.
If China throws off its zero-covid policy, it could be over pretty quick, and Rio could be back to posting record numbers as soon as next year.
But in a world where ideology, economics and science are increasingly blinding each other, don’t hold your breath. For now, let’s cherish the existing Rio dividend, and hope there are no more cuts.