Earnings tumble as Rio takes big hit on Alcan

RIO TINTO'S reporting of its March quarter profit got overlooked in last week's about-face on its $US19.2 billion ($24.2 billion) bailout by Chinalco and its replacement with a $US21 billion raising from a rights issue and its iron ore compact with BHP Billiton. Which is all just as well, given the slump in commodity prices that came with the global financial crisis was not kind to group earnings. Net earnings fell 45 per cent, to $US1.6 billion, from the $US2.93 billion posted in the previous corresponding period. The earnings figure was propped up by a $US800 million contribution from the sale of its Brazilian potash assets, meaning profit from continuing operations was particularly poor. "[The earnings] look light to us," said a Liberum Capital analyst, Michael Rawlinson. "[It was] a shocker in aluminium." But the market took comfort from Rio's near-steady cash flow generation for the quarter of $US3.4 billion. Major areas of earnings weakness were aluminium and copper. Underlying earnings from aluminium collapsed from $US330 million in the March 2008 quarter to a loss of $US481 million, a result that underscored just what a disaster its acquisition of Alcan has been. Rio had already made $US7.34 billion of writedowns on the Alcan acquisition with the release of its full-year results in February. On Friday it revealed a further $US204 million impairment on the value of its Alcan packaging assets, based on its best estimate of the potential sale proceeds and the tax it would need to pay. It has been negotiating with potential buyers, including Amcor, to sell that division. Its Alcan engineered products division, which is also for sale, reported an operating loss during the quarter due to a decrease in sales volumes and higher production costs. The collapse in copper prices, plus the lack of demand for diamonds in the wake of the global financial crisis, cut earnings from the copper and diamonds division from $US861 million to $US182 million. Rio said that the net effect of price movements in the March quarter was to decrease earnings by $US1.18 billion. Unsurprisingly, Rio has decided to forego paying an interim dividend for the present financial year. Rio said it planned to pay a final dividend for the current financial year, subject to satisfactory trading results. It said that the total cash dividend payment for the 2010 financial year would at least be equal to that paid for last year, $US1.75 billion. source：business.brisbanetimes.com.au