Rio to dig deeper in hunt for profits

MINING giant Rio Tinto is expected to post flat earnings when it reports its half-year results on Thursday. And analysts say there are few surprises in store after its $US38.1 billion ($A43.88 billion) bid for Canadian aluminium producer Alcan. While analysts had previously been hoping for a another return of cash from the miner's coffers or news of new acquisitions, they are now hoping for a better understanding of how higher costs, being felt across the sector, are squeezing Rio Tinto's margins. A consensus of analysts' forecasts predicts that Rio Tinto's underlying earnings will be about $US3.7 billion - from a range of $US3.5 billion to $US3.95 billion. That compares with Rio Tinto's underlying earnings of $US3.75 billion for the first half of 2006 and $US3.79 billion in net earnings for the same period. "The big issue has got to be costs and what have their margins done over the last six months," ABN Amro analyst Rob Clifford said. He says there is not likely to be any more information on Rio Tinto's takeover bid for Alcan announced earlier this month. "That deal has still got to go through," Mr Clifford said. "It's still got to be approved by shareholders, so they've given a lot of information and I don't think we'll expect anything else on that until after it has been consummated." ABN Amro is forecasting underlying earnings of $US3.8 billion. UBS analyst Glyn Lawcock agreed that margins and costs will be on the agenda, as the higher commodity prices that are benefiting miners' bottom lines also bite into their own budgets. "(I'll be) having a look at the margins coming through . . . updates on their projects, update on their growth profile and I guess just more comments on how they see the market," Dr Lawcock said. "Given they've bought Alcan, it's probably taken a bit of potential excitement or upside out of the result. "There was always a chance they might top-up the buyback program or something like that, but now I think that's obviously all been removed." Dr Lawcock is forecasting first-half underlying earnings of $US3.65 billion. Just weeks ago, Rio Tinto launched its $US38.1 billion takeover bid for Alcan, which will make it the world's biggest aluminium producer and fourth-biggest producer of alumina. Alcan had been seeking a "white knight" to help fend off a hostile cash-and-scrip bid from rival aluminium producer Alcoa of the US worth $US28 billion. Market rumours are now circulating that other miners, perhaps even BHP Billiton, are planning a tilt at Alcoa or its joint venture partner, Alumina.