Rio Tinto profits undermined by weak commodity prices

8 Aug 2012 | News - Comment now

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Rio Tinto profits undermined by weak commodity prices

Anglo-Australian mining group Rio Tinto (LON:RIO) has seen its net earnings sink 22 per cent to $5.9 billion (£3.8 billion) for the first half of the year, but hopes to ride faster Chinese growth to recovery.
To do so, it will maintain its planned $16 billion (£10.3 billion) of capital expenditure through 2012. It has already spent almost half of that since January, with net debt soaring from $8.5 billion (£5.6 billion) to $13.2 billion (£8.5 billion) in the period.

Rio’s chief executive, Tom Albanese, explained that ‘from autonomous trucks and trains to faster underground tunnelling and advanced mineral recovery, all of these initiatives are aimed at reducing costs and improving productivity’.

Albanese’s confidence is derived from his expectation that Chinese demand for commodities will rebound.

‘Our order books are full and we expect Chinese GDP growth to be around 8 per cent in 2012’.

This is more optimistic than even China’s own growth target of 7.5 per cent.

However, Rio is well positioned to benefit from China, presently its biggest market. The miner is the world’s second-largest supplier of iron ore, and is anticipating rising Chinese demand for it.

Prices for iron ore, though, are currently at their lowest levels since 2010 as producers increase their output.

The other commodities that Rio mines have also fallen in price. Only the prices of gold, which has soared 14 per cent since January, and thermal coal are proving resilient.

Shares in Rio were nonetheless buoyed by its dividend announcement. The interim dividend will climb 34 per cent to $0.725 (46p), and the share price jumped nearly 3 per cent to £32.19.

The results from Rio follow those from rival Xstrata, where pre-tax profits fell a third to £1.2 billion for the first half. Xstrata noted in particular the declining prices for zinc and nickel.

Related topics: Commodities, Gold China, Iron, Mining, Rio Tinto, Xstrata

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