Rio Tinto bets on expansion as profits drop

Michael Bow
Follow Michael
IN WHAT has become a torrid fortnight for mining companies, Rio Tinto yesterday unveiled a 34 per cent slump in first half profits to $5.5bln (£3.3bn).

However declining global demand for natural resources hit Rio less dramatically than its peers: Xstrata and Anglo-American have all revealed sharp falls in underlying earnings over the past two weeks.

In fact, Rio’s results exceeded analysts’ expectations, and the shares finished nearly three per cent higher yesterday, one of the best performances in the FT-SE 100 index.

Record first-half revenues from Rio’s Australian Pilbara iron ore mines failed to counter slowing shipments to China. But, unlike his counterpart at Xstrata, Rio chief executive Tom Albanese believes that Chinese demand is on the rise.

“We expect to see signs of improvements in Chinese activity by the end of the year ... as government stimulus measures begin to flow to infrastructure investment,” he said. Rio expects Chinese GDP to expand by eight per cent this year, exceeding the Chinese government’s own expectations.

Despite a rising cost base -- net debt jumped by 55 per cent over the first six months of the year to $13.2bn -- Albanese has no plans to shave his $16bn capital expenditure budget for 2012, attributing the strong performance of the Pilbara mines to investment-generated efficiency.

“From autonomous trucks and trains to faster underground tunnelling and advanced mineral recovery, all these initiatives are aimed at reducing costs and improving productivity,” Albanese said.

The interim dividend rose by 34 per cent to $0.725 a share.