Industryweek 4991 Rio Tinto Promo
Industryweek 4991 Rio Tinto Promo
Industryweek 4991 Rio Tinto Promo
Industryweek 4991 Rio Tinto Promo
Industryweek 4991 Rio Tinto Promo

Soft Commodity Prices Cause Rio Tinto's Profit to Plunge 71%

Aug. 8, 2013
Earnings for the first half were down 18% to $4. 22 billion.

SYDNEY -- Softer commodity prices and slowing demand from China saw mining giant Rio Tinto on Thursday post a 71% slump in first-half net profit, with the company warning the outlook remains volatile.

The Anglo-Australian miner's profit in the six months to June came in at US$1.72 billion while underlying earnings, the measure preferred by the company, were down 18% to US$4.22 billion, in line with expectations, hit by weaker iron ore, copper and coal prices.

The difference between profit and underlying earnings stems from US$2.5 billion in one-off costs, including exchange losses on debt and a US$340 million write-off related to a collapsed pit wall at its Bingham Canyon copper mine in the United States.

Chief executive Sam Walsh said the company had achieved US$1.5 billion in cost reductions in the six months, while Rio posted record first half iron ore production and stronger copper volumes.

Rio has invested billions of dollars in recent years expanding production of iron ore, coal, copper and other goods needed to fuel China's booming economy, but weaker commodity prices and slowing demand from its key customer hurt performance.

"The medium-term economic outlook remains volatile with a broader range of outcomes now possible," said Walsh.

"Chinese economic growth has decelerated so far this year and is unlikely to recover significantly in the second half, but we do not expect a hard landing.

"This global economic volatility only serves to highlight the need to build a stronger and more resilient business," he added.

Walsh, who formally replaced Tom Albanese at the helm in February after Rio posted its first annual loss in 18 years, said aggressive cost cutting meant the company was "firmly on the path toward becoming a leaner, more tightly-run business."

"We are seeing good early results of our business performance initiatives in our pursuit of greater value for shareholders," he said in announcing a 15% rise in dividends to 83.5 cents per share.

"Capital expenditure has been reduced, approved growth projects are on track and operations are performing well."

Capital expenditure was slashed by nine percent to $7 billion in the first half with full-year costs set to come in around $14 billion, 20% lower than the previous year, putting the company on track to achieve the $US5 billion in spending cuts it is targeting by the end of 2014.

Iron ore dominated Rio's half-year performance, delivering earnings of US$4.7 billion, helped by better spot prices for the key steelmaking ingredient. The coal division posted a US$52 million ($A58.06 million) loss.

But Rio suffered a setback in its plans to boost shareholder returns after failing to find a buyer for its struggling Pacific Aluminum business with Walsh saying its divestment "is not possible in the current environment and it will be reintegrated into the Rio Tinto Alcan group."

Chairman Jan du Plessis said the business has demonstrated "considerable resilience against a backdrop of continuing market volatility" despite the plunging net profit. "Cash flows from operations were strong, driven by our cost-savings programs but lower prices and a higher tax rate led to a reduction in underlying earnings to $4.2 billion in the first half of 2013."

"Our strategy to invest in and operate large, long-life, low-cost, expandable operations remains unchanged.

"Sam and his team are seeking to simplify the portfolio through the divestment of non-core assets but only where we can realize value for shareholders."

- Martin Parry, AFP

Copyright Agence France-Presse, 2013

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!