Rio Tinto reported a 12 percent fall in annual underlying earnings on Wednesday, in line with forecasts, but paid a better-than-expected final dividend as it said inflation pressures were starting to recede.

Rio said its underlying earnings came in at $11.8 billion for 2023, down from $13.4 billion a year earlier, mostly due to lower prices for aluminum and its minerals division. That was largely in line with the LSEG consensus estimate of $11.7 billion.

Rio declared a final dividend of 258.0 cents per share, up from 225.0 cents per share in 2022 and ahead of the LSEG estimate of 247.0 cents per share.

The world's largest iron ore producer said it expects Pilbara production costs to rise in 2024 due to persistent labour and parts inflation in Western Australia.

However, the worst of the inflation pressure is likely in the past, Chief Financial Officer Peter Cunningham told reporters.

"We are starting to see them (costs) moderate now as we go into 2024," he said.

"The reality is we remain in a very strong financial position and can afford to undertake our growth agenda and continue to pay out at 60 percent."

At Rio's iron ore division, which accounted for around 80 percent of its profits, underlying earnings grew by 6 percent, outpacing a 2 percent increase in prices of iron ore.

However Rio warned that it sees unit production costs rising to between $21.75 and $23.50 per metric ton from $21.50 in 2023.
"While inflation has eased, we continued to see lag effects in its impact on our third party costs, such as contractor rates, consumables and some raw materials; we expect this to stabilize in 2024," the company said in a statement.

Average prices Rio Tinto received for aluminum sold in 2023 slipped from COVID-era peaks, as supply chains normalized and demand from Western markets weakened. This offset a boost from production growth across major commodities including copper.
The miner booked net impairment charges of $0.7 billion, after tax, mainly related to its alumina refineries in Queensland, taken in the first half of 2023, as the assets faced challenging market conditions.

INORGANIC GROWTH

Rio's net debt remained low at $4.2 billion, which has spurred expectations that it may look to grow via acquisition.

Chief executive officer Jakob Stausholm said last August that Rio Tinto was open to small, bolt-on acquisitions to shape its portfolio including in Canadium lithium but that valuations were too high.

He stuck to that view on Wednesday, even following a slide in lithium prices that has hit company valuations.