Rio Full-Year Profit Falls 50% on Aluminum Writedown

Feb. 12 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, said full-year profit fell 50 percent after it took a one-time charge for writing down the value of its aluminum assets. Net income fell to $3.7 billion from $7.3 billion in 2007, London-based Rio said today in a statement to the Australian stock exchange. Underlying earnings, which exclude some one-off items, rose to $10.3 billion, beating the $9.65 billion median estimate of eight analysts compiled by Bloomberg. Chief Executive Officer Tom Albanese, who rejected a $66 billion takeover offer from BHP Billiton Ltd. last year, is sacking workers, selling assets and shrinking spending to cut debt by $10 billion this year. Rio today sold bonds and stakes in mines for $19.5 billion to its biggest shareholder Aluminum Corp. of China, to help to slash its $38.9 billion of debt. “Given the current uncertain economic conditions and the unprecedented rate of deterioration in our markets and prices, we are now focusing our efforts on maximizing and conserving cash generation and paying down debt,” Albanese said in the statement. Rio, halted in Sydney trading today, rose 6.2 percent to $52 yesterday, its highest in almost three months. The stock rose 3.5 percent to 1,969 pence yesterday in London trading. Chairman-Elect Quit State-owned Chinalco and New York-based Alcoa Inc. first bought 9 percent of Rio last February to become its largest shareholders. Rio’s chairman-elect Jim Leng quit last week, less than a month after his appointment, because of a disagreement over how to cut borrowings. Albanese said Jan. 15 that fourth-quarter earnings at its aluminum and copper units will decline because of falling prices. Earnings will be “negatively impacted” as a result of a “sharp decline in the aluminum price,” he said. Inventories of aluminum will also be written down, Rio said at the time. Aluminum, used in cars, planes and beverage cans, slid 36 percent last year on the London Metal Exchange while copper slumped 54 percent, the biggest decline since at least 1987, as purchases slowed and stockpiles grew. Rio wrote down the value of its aluminum unit by $7.9 billion, it said today. Prices for iron ore, which accounted for 48 percent of Rio’s operating income in 2007, rose for a sixth straight year to a record last year on higher steel demand in Asia before the global financial crisis. Copper contributed 37 percent of operating income in 2007 followed by coal and uranium with 11 percent and aluminum with 9.5 percent. Iron Ore, Copper Production of iron ore fell 18 percent in the fourth quarter, from a record in the prior quarter, after less ore was produced at its Pilbara mines in Australia, Rio said last month. Fourth-quarter mined copper output slid 18 percent because of declining grades at Escondida in Chile, the world’s largest copper mine. Rio owns 30 percent of the mine, which is operated by Melbourne-based BHP. Rio has sold $4.6 billion of assets including zinc, gold and iron ore mines as well as uranium and potash projects and its share in a Chinese aluminum smelter. It is trying to sell its aluminum packaging and engineered products units and its U.S. coal and minerals businesses.