By Peter Ker
Resources giant Rio Tinto has beaten market expectations by reporting first-half underlying earnings of $US5.2 billion.
While the results amount to a 34 per cent drop on a year earlier, the profit beat consensus forecasts from analysts of $US4.9 billion. Credit Suisse, for instanct, had forecast a $US4.7 billion result.
Rio Tinto digs up a profit surprise.Credit: Reuters
The company’s net earnings were $US5.885 billion - also topping market forecasts of about $US5 billion.
The company has also announced a deferred tax credit of $US1 billion relating to Australia’s mining tax.
"We have been signalling for some time that markets would remain volatile and we have seen challenging conditions in the first half," Rio Tinto Chief Executive Tom Albanese said.
"Although sentiment remains negative in Europe and the US recovery is still fragile, our order books are full and we expect Chinese GDP growth to be around 8 per cent in 2012. We expect to see signs of improvements in Chinese economic activity by the end of the year."
Rio said it is sticking to its $US16 billion spending plans for the year, much of which is being spent on expanding the company's mining operations in the Pilbara region of WA.
Even so, Rio plans to cut 140 jobs with the closure of the Blair Athol Mine in central Queensland. The mine is located close to the Clermont Mine, which Rio has had under review for several weeks, and from which the company has already announced some redundancies.
Rio's Australian-listed shares ended trading before the earnings release. For the day, they edged up 4 cents, or 0.1 per cent, to $54.89.
Rio's London-based shares were trading 0.9 per cent in early trading to 3,154 pence, compared with a 0.5 per cent drop in the broader mining sector.
Price slump
This time last year Rio reported a net profit of $US7.6 billion and an underlying profit of $US7.8 billion. The company blamed today’s lower figure on the recent slump in iron ore prices.
The lower iron ore prices will hurt Rio more than its bigger rival BHP Billiton, given the commodity accounts for almost 80 per cent of Rio’s revenues.
Iron ore prices have fallen about 13 per cent over the past month and the benchmark price in China was today $US116 per tonne - well below the $US135 per tonne the bulk commodity has been fetching for most of 2012.
Rio reports on a calendar year schedule. It will pay an interim dividend of 72.5 US cents per share, up 34 per cent on a year ago.
The miner said cashflow from operations was $US7.8 billion in the first half, down 39 per cent on a year earlier.
Headwinds for miners
Rio Tinto joins major rivals Anglo-American and Xstrata in reporting earnings dented by falling prices and stubbornly high costs. Vale, the world's largest producer of iron ore, reported its worse second quarter since 2007 last month, blaming slowing demand for the steelmaking ingredient.
Rio chief Mr Albanese said the company is stepping up efforts to contain costs and raise productivity.
The miner's Oyu Tolgoi project in Mongolia is on course for its first commercial output in the first half of 2013.
Rio's net debt increased to $US13.2 billion from $US8.5 billion a year ago.
The company said it is ''well advanced'' in its plans to sell off its diamond unit but said it is not in talks with BHP on combining diamond operations. Rio is not a ''forced seller'' of either its diamond or aluminium assets, the miner said.
Earnings from all of the company’s business divisions - excluding the small diamonds and minerals area - were down, including iron ore, aluminium, copper and energy (coal and uranium)
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BusinessDay with Reuters, Bloomberg, AAP