Shock as Rio writes down Aluminium assets by $472 million
THE VALUE of Rio Tinto's Pacific Aluminium operations have been written down by a massive $472 million, which includes its Gladstone based asset Boyne Smelters Limited.
The news comes as businesses and corporations struggle to negotiate the impact of COVID-19 on their bottom line, and battle for equitable electricity prices to continue production.
Overall first-half profits, after tax, for Rio Tinto's owners fell from $4.1 billion in 2019, to $3.3 billion in 2020, according to the company's half-yearly report released today.
The price of aluminium has fallen by 15 per cent since the same time last year, the Rio Tinto half yearly results reveal, and the price of alumina has plummeted a huge 30 per-cent.
Despite this, the report claims the aluminium industry has seen "stable operations and a good cash conversion in a challenging market."
"In 2020 first half, we recognised $1,033 million of impairment charges, comprised of $472 million related to three of our Pacific Aluminium smelters (NZAS, Bell Bay and Boyne), $269 million related to the ISAL smelter in Iceland and $292 million related to our interest in the Diavik diamond mine," the report states.
These impairment charges were not included in Rio's underlying earnings, and increased by $174 million compared to 2019, the report states.
Net earnings and underlying earnings refer to amounts attributable to the owners of Rio Tinto.
Rio Tinto Chief Executive J-S Jacques said the company had been agile and adapted its way of working, to deliver another resilient performance while navigating the new and ongoing challenges of dealing with COVID-19.
"Despite the challenging backdrop, we generated underlying EBITDA (income with tax and charges added) of $9.6 billion, with a margin of 47 per cent, driven by our strong and stable operations, with all of our assets continuing to operate throughout the first half," he said.
"As a result, we have declared an interim dividend of $2.5 billion, equivalent to 155 US cents per share, and have reconfirmed our 2020 production guidance across all commodities.
"Our world-class portfolio of high-quality assets and our strong balance sheet consistently serve us well in all market conditions and particularly in turbulent times.
"This, together with our disciplined capital allocation, underpins our ability to sustain production, increase our investment in the business, pay taxes and royalties to governments and continue delivering superior returns to shareholders."
The EBITDA of a company is a convenient method of analysing and comparing the overall profit of companies and industries.
It eliminates the effects of financing and capital expenditure.
In 2018, The Observer reported Rio Tinto had shelved its plans to sell Boyne Smelters Limited.
In operation since 1982, Boyne Smelters Limited activities include manufacturing carbon anodes in the carbon plant, aluminium production in reduction lines, and casting of molten metal into aluminium products ready to ship.
The smelter is adjacent to, and connected via a conveyor belt, to the Queensland Alumina Limited Refinery for the supply of alumina.
Rio Tinto also has an alumina refinery at Yarwun.