PERTH (miningweekly.com) – Mining major Rio Tinto on Thursday reported a 12% increase in underlying earnings for the first half of the 2019 financial year, on the back of soaring iron-ore prices.

Underlying earnings for the half-year reached $4.93-billion, up from $4.41-billion a year earlier, while underlying earnings before interest, tax, depreciation and amortisaiton (Ebita) increased by 11%, from $9.19-billion to $10.25-billion.

“Our financial performance was driven by our Pilbara operations with a 72% Ebitda margin, underpinned by strong iron-ore prices," said CEO Jean-Sebastian Jacques.

The price of iron-ore has climbed by more than 60% this year, owing to supply disruptions in Australia and Brazil and rising steel demand in China.

“We are taking actions to protect the Pilbara blend and optimise performance across our iron-ore system, following the operational challenges which emerged in the first half,” Jacques said, referring to operational issues that had led to the company cutting its guidance for for Pilbara shipments to between 320-million tonnes and 330-million tonnes.

Consolidated sales revenue for the six months under review reached $20.7-billion, which was 9% higher than the 2018 first half, excluding the $0.8-billion contribution from the coking coal assets divested in 2018. The company said that the higher iron-ore prices offset the impact of lower volumes and lower aluminium prices.

Cash generated from operating activities reached $6.4-billion in the period under review, with the 22% increase driven primarily by higher underlying Ebitda, Rio said.

Capital expenditure was $2.4-billion, of which $1.2-billion was on development projects and $1.2-billion to sustain capacity at our operations.

Looking ahead, Rio said capital expenditure (capex) would be about $6.0-billion for the full 2019 and $6.5-billion in 2020 and 2021. The miner noted that each year’s capex estimate included sustaining capex, which is expected to be about $2.5-billion a year, up from the previous estimate of between $2-billion to $2.5-billion a year.

For 2019, Rio is also expecting the run-rate from its mine-to-market programme to be about $0.5-billion, despite weather impacts.

“This reflects operational challenges experienced in the Pilbara, which reduced our 2019 first half run-rate to $0.2-billion. We now expect our mine-to-market productivity programme to deliver an additional free cash flow run-rate of $1.0-billion to $1.5-billion from 2021,” the miner told shareholders.

It noted that the delivery of this target was based on the assumption that iron-ore volumes would increase, subject to market conditions, and that raw material prices would revert to those at the beginning of the programme in 2017, mainly in aluminium.

“Our world-class portfolio and strong balance sheet serve us well in all market conditions. This, together with our disciplined capital allocation, underpins our ability to continue to invest in our business and deliver superior returns to shareholders in the short, medium and long term.

"Our delivery is in evidence today, with our record interim returns of $3.5-billion,” said Jacques.

The group announced a $1-billion special dividend.