Rio Tinto's First-half Earnings Jump 260%

Aug. 5, 2010
Company credits cost reduction efforts, increased production and stronger pricing environment

Anglo-Australian mining giant Rio Tinto on August 5 posted a record US$5.85 billion in first-half net earnings, an increase of 260%.

However, despite forecasts of strong global growth this year and next, the company warned that the world economy "will be volatile" for the next year and a half.

"We've reaped the benefits of the cost reduction efforts implemented in 2009 and we have been pushing our production hard to benefit from a strong pricing environment, leading to record first-half cash flows," said CEO Tom Albanese.

Iron ore accounted for the lion's share of Rio's first-half earnings, with production growing 15%. However, revenues saw a 74% spike because of sharply higher prices. The iron ore division posted earnings of $4.11 billion, compared with $1.93 billion a year earlier, with the price hike mainly due to a shift in March away from annual benchmark contracts to quarterly pricing, Rio said.

"Developing our relationship with China is a key priority for Rio Tinto," said Chairman Jan du Plessis."Chinese GDP is expected to grow at approximately 9%. This would have positive implications for metals and minerals markets, but it is clear that global economic conditions on a global scale will be volatile."

He also emphasized Rio's future lay with China, pointing to last week's deal with Chinalco subsidiary Chalco to develop the huge Simandou iron ore project in Guinea. "Our longer-term view remains that industrialization and urbanization, followed by India, will drive robust commodity demand growth," Albanese said.

China has been the major buyer of Australia's vast resources, which were key to helping Canberra avoid recession during the global downturn.

Du Plessis said the "outstanding" first-half performance was due to higher commodity prices, which added $3.77 billion to underlying earnings compared with the same period last year. The results were underpinned by a 125% boost to underlying earnings of $5.77 billion.

Copper and molybdenum prices were up 78% on year, with aluminum rising 50% and gold 26 percent higher than the 2009 first half.

Coal prices were 38% higher before they shifted to quarterly pricing, after which they rocketed from about US$90 a ton to as much as $225, Rio said.

Du Plessis also credited cost reduction efforts which slashed Rio Tinto's net debt to $12 billion dollars from $39 billion in June 2009.

Rio said it had renewed its focus on growth, with three billion U.S. dollars approved since January for projects including the expansion of its Western Australia iron ore operations and the Simandou venture. "Growth is the first priority for our cash flows," said Albanese, noting expansions or development underway in Canada, the United States and Mongolia.

Capital expenditure for the full year was expected to reach six billion dollars, and hit nine billion dollars the following year.

The miner made only passing mention of Australia's new 30% tax on coal and iron ore -- a watered-down version of the original 40% "super tax" Rio dubbed its top sovereign risk worldwide and was instrumental in having overturned.

"We now have further opportunity to work constructively with the government to ensure that the tax system continues to encourage investment in Australia," Albanese said.

Profit for the first half was $6.28 billion, compared with $1.83 billion for the same period last year.

Copyright Agence France-Presse, 2010

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