Rio Tinto books record $7.6 bn 1H earnings

4th August 2011, Comments 0 comments

Mining giant Rio Tinto posted record first-half earnings Thursday as net profit hit US$7.6 billion due to strong Asian demand for its commodities but it warned of debt headwinds from Europe and the US.

The Anglo-Australian miner said the 30 percent year-on-year rise in earnings capped a "record-breaking" period, with first-half cash flow of $12.9 billion, a 31 percent premium on the first half of 2010.

And CEO Tom Albanese warned of significant downside risks to growth, with credit tightening in Asia and increasing concerns over sovereign debt in the United States and Europe.

"There are important risks to this outlook related to the pace of credit tightening in developing countries and the threat of financial crises arising from sovereign debt problems in Europe and the United States which could destabilise commodity markets," he said.

"Our view remains that our markets will continue to experience higher than average growth but they will be characterised by elevated volatility and scope for discontinuities," he added.

Chairman Jan du Plessis said strong Asian demand had driven the "favourable" results and Rio would expand its $5 billion share buyback programme to $7 billion in recognition of its "continued strong financial performance".

He said that a "volatile economic environment... continues to exist, driven by significant macro economic imbalances."

Rio said lower first-half volumes due to severe flooding and cyclone emergencies in Australia were partially offset by higher prices for its commodities, which boosted earnings by $4.997 billion.

Currency movements, including the Australian dollar's surge to a record high against the greenback, wiped $810 million off the bottom line, while rising oil prices cost $95 million.

Rio's expansion of its flagship Pilbara iron ore project was now six months ahead of schedule and underlying earnings from the key sector jumped 45 percent in the half to $5.952 billion, despite cyclones and flooding hitting volumes.

It flagged full-year iron ore production in excess of 240 million tonnes.

Demand for coal was "robust" in the half, with India and China offsetting falls in the Japanese market, but Rio said the Australian summer's wild weather had driven steelmaking coal volumes down 20 percent on 2010 first half figures.

Total energy group earnings, which also includes uranium, were 39 percent lower than the first half 2010.

Rio forecast steelmaking coal production of eight million tonnes for the year and 18 million tonnes of thermal coal, burned to produce power.

ANZ commodities analyst Mark Pervan said the results reflected a construction boom in China that was buoying the global market for iron ore -- a key ingredient of steel.

"There's been a big increase in real estate construction in China in the first half of the year, moreso than you've seen in previous years," Pervan told AFP.

"What you're finding is there's been a big demand in the low-end steel market in the first half in China ... and that's key for these guys."

Dual-listed Rio closed 1.3 percent lower at Aus$76.58 on the Australian stock exchange, which closed before the results were released.

© 2011 AFP

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