Rio Tinto Profit Down 14% As Costs Bite

Rising costs crimped the China-driven commodity boom for Rio Tinto as the global miner said that first-half net profit fell 14% to $3.25 billion. Despite high copper and iron ore prices and increasing production, Rio’s earnings for the six months to June 30, 2007, came in below market forecasts and compared with $3.8 billion a year earlier. Rio Tinto’s result shows how rising costs are hurting margins for miners as the global rush to bring on new production pushes up the cost of skilled labor, contractors, and materials like steel, tires and explosives. Higher costs across Rio Tinto’s business carved $503 million from the miner’s earnings and Chief Executive Tom Albanese said keeping a lid on cost pressures in a booming resources industry is a focus for the company. “I am very concerned about the increase in costs that we are seeing in capital projects in Western Australia in particular,” Albanese said. The result was further damped by a $314 million impairment of Rio Tinto’s Argyle diamond mine because of industry cost pressures, raising the cost of the move underground at the West Australian mine to around US$1.5 billion, from an earlier forecast of $910 million. Excluding the Argyle charge, Rio’s underlying earnings were down 6% at $3.53 billion, below market forecasts of $3.7 billion.