Rio Tinto First-Half Profit Triples on Iron Ore Sales
Rio Tinto CEO Tom Albanese
Carla Gottgens/Bloomberg
“We have reaped the benefits of the cost-reduction efforts implemented in 2009 and have been pushing our production hard to benefit from a strong pricing environment,” said Rio Tinto CEO Tom Albanese, pictured.
“We have reaped the benefits of the cost-reduction efforts implemented in 2009 and have been pushing our production hard to benefit from a strong pricing environment,” said Rio Tinto CEO Tom Albanese, pictured. Photographer: Carla Gottgens/Bloomberg
July 30 (Bloomberg) -- Gavin Wendt, a senior analyst with MineLife Co. Ltd., talks with Bloomberg's Susan Li from Sydney about Aluminum Corp. of China Ltd.'s agreement to pay $1.35 billion for a stake in Rio Tinto Group's Simandou iron ore project in Guinea. Chalco, as the Beijing-based company is known, will acquire a 44.65 percent stake by funding development over the next two to three years, the companies said in a joint statement. (Source: Bloomberg)
Rio Tinto Group, the world’s third- largest mining company, said first-half profit more than tripled as sales of iron ore to steelmakers surged and prices rose.
Net income climbed to $5.85 billion from $1.62 billion a year earlier, the London-based company said today in a statement. So-called underlying earnings, excluding some one- time items, advanced to $5.77 billion, beating the $5.4 billion average estimate of 13 analysts compiled by Bloomberg.
Chief Executive Officer Tom Albanese, who slashed debt by more than a third in the period, said today he’ll raise capital spending 50 percent in 2011 as global growth is tipped to rebound. Rio, which this year ended a 40-year-old custom of pricing iron-ore sales annually, said the switch to quarterly contracts helped drive a doubling in earnings for that unit.
“The numbers were very good” and gains in iron ore prices “had a massive impact,” Paul Cliff, an analyst at Nomura Holdings Inc. in London, said today by telephone. “The focus probably shifts to the balance sheet which is rapidly becoming overcapitalized. Next year they could easily do a $10 billion buyback.”
Rio, the world’s second-largest iron ore exporter, advanced 0.5 percent to 3,430 pence at the 4:35 p.m. London close. The stock rose 0.2 percent to A$73.01 on the Australian stock exchange at the 4:10 p.m. close in Sydney.
Debt Declines
The company, which also produces copper, coal, aluminum and diamonds, will pay a dividend of 45 cents a share, it said. It reduced net debt to $12 billion as of June 30 from $18.9 billion on Dec. 31. Capital spending is estimated to reach $9 billion next year, Rio said.
Albanese has grappled with debt that ballooned after Rio’s $38.1 billion purchase of Canadian aluminum producer Alcan Inc. in 2007. He has cut spending and jobs, raised $15.2 billion from a share sale and agreed on an iron-ore venture with BHP Billiton Ltd., with BHP pledging to pay $5.8 billion when the accord is completed.
“We have made a dramatic reduction in debt over the last 18 months and I don’t think it would be right to say we are overcapitalized,” Chief Financial Officer Guy Elliott said today on a call with reporters. “Markets are certainly strong but they are volatile and we think that this volatility may present opportunities to us, both for further growth and including M&A, for small and medium-sized M&A at least.”
Quarterly Contracts
Rio, which joined rivals BHP Billiton and Vale SA in switching to quarterly accords, has shifted most Asian steel- mill customers to quarterly contracts. Iron ore was Rio’s biggest earner last year, with revenue of $12.6 billion.
“We have reaped the benefits of the cost-reduction efforts implemented in 2009 and have been pushing our production hard to benefit from a strong pricing environment,” Albanese said in the statement.
Earnings at the iron-ore unit surged to $4.1 billion in the first half on sales of $9.9 billion. Vale, the world’s biggest exporter of the steelmaking material, last week said profit jumped fourfold in the second quarter, the first reporting period since the pricing change.
The average spot price of iron ore delivered to China, the world’s biggest buyer, was $145 a metric ton in the first half, according to The Steel Index prices. That’s more than double the average $69 a ton for the same period a year earlier. Prices for Rio’s sales in the half averaged $102 a ton, Elliott said.
Rio has approved $990 million of investment at the Cape Lambert port in Western Australia’s Pilbara region in the past month as part of a plan to boost iron-ore output capacity by 50 percent to 330 million tons a year. The total cost of the expansion will likely be in the “double-figure billions,” Elliott said at an analyst briefing today in Sydney.
The aluminum division returned to profit as prices increased 50 percent from a year earlier, posting net income of $358 million, Rio said.
To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net.
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