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Mining Giant Rio Tinto flags virus uncertainty threat

[MELBOURNE] Rio Tinto Group warned the coronavirus outbreak could "create significant uncertainty" in the short-term as it on Wednesday reported a windfall from iron ore's price surge in 2019 that spurred profits to an eight-year high.

The No 2 miner is seeking to both reward investors and fund new growth, even as rivals like Anglo American plc cut back on returns to pivot more decisively to mergers and acquisitions, and project spending. Rio paid out a total of US$7.2 billion in full-year dividends, compared to 2019 capital expenditure of US$5.5 billion.

KEY INSIGHTS

Rio, which wins about half of its revenue from China, said all "operations are looking at opportunities to adjust to the impact of the Covid-19 virus on market conditions", according to a statement. The Oyu Tolgoi copper operation in Mongolia earlier flagged it was experiencing a slowdown in exports to China.

The company will "adjust production levels and product mix to meet customer requirements", if the global growth outlook worsens, and teams in Singapore and Shanghai are closely monitoring the impacts of coronavirus on China.

Rio aims to make its own operations carbon neutral by 2050 and pledged to spend US$1 billion on the plans over the next five years. However, Rio won't set targets for pollution caused by customers using its products, known as scope 3 emissions. That sets the producer at odds with peers like BHP Group, and BP plc.

The producer said it had "benefited from robust demand" for higher quality iron ore and from supply constraints in the export market last year. The company this month cut guidance on annual shipments to between 324 million and 334 million tonnes amid damage to infrastructure caused by a cyclone. That raises the prospect of Rio's shipments falling for a second straight year.

Rio will target first production at the Winu copper project in Western Australia in 2023, the company said.

MARKET REACTION

Rio's Sydney-traded shares have declined 2.8 per cent in the past year, as BHP has fallen 5.3 per cent. The earnings statement was released on Wednesday after trading closed.

BLOOMBERG