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Will the Slide in Rio Tinto’s Underlying Earnings Continue?

How Will Rio Tinto Adjust to China’s 'New Normal'?

(Continued from Prior Part)

Operating income

Rio Tinto’s (RIO) underlying EBITDA (earnings before interest, taxes, depreciation, and amortization) was $7.3 billion for 1H15. This is a fall of 30% year-over-year (or YOY). Its underlying earnings also fell 43% YoY to $2.9 billion in 1H15. In this article, we’ll see the reasons for the declining EBITDA and underlying earnings.

Prices led earnings fall

  • Lower realized prices were the main culprit behind Rio’s fall in underlying earnings. Lower prices reduced earnings by $3.6 billion. They also offset the impact of cost reductions that Rio achieved during the year.
  • The bulk of the drop in underlying earnings was due to a fall in average realized iron ore prices. They fell 45% YoY in 1H15. Of a total fall of $3.6 billion due to...