Lean, mean cash machine, or 140m tonne gorilla? Rio Tinto draws shareholders’ attention to the cash machine and to the $8.7bn of cash flow that its operations cranked out in the first six months of this year. That is 8 per cent more than the same period in 2013, as results showed on Thursday.

Rio would naturally focus on the cash and on success in reducing costs (by $3.2bn in the two years) and capital spending (which is $9bn this year, $2bn below expectations). In recent years, miners such as Rio became pyres of shareholder money, failing to control costs and committing to immense projects, under cover of high commodity prices. These then collapsed.

Returning more cash to Rio’s shareholders next year would validate the machine. But what amount of return? A “material increase” is promised, but it is difficult to be more exact as prices remain volatile. Still both Rio and rival BHP Billiton trade at 7.5 times cash flow, a premium over the FTSE 350 mining index.

And that is where the gorilla comes in. Rio is also the world’s second-biggest miner of iron ore, which provided almost all of the first-half operating cash flow and $5.1bn underlying earnings during the period. Rio produced 140m tonnes of the resource.

Look inside underlying earnings and a $1.3bn hit was taken from prices (iron ore spot pricing fell a fifth in those six months). Cost reductions restored $660m, after taxes. Increasing volumes (at low cost) added more, though: $910m. Margins are healthy enough even with falling prices. An increase in low cost supply from Rio and others could force higher cost miners to cut back in order to support prices. Rio thinks 125m tonnes will exit the market in 2014. Even as Rio looks beyond iron ore growth, the cash machine needs the gorilla.

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