Rio's 1H in-line but aluminium drags

Rio Tinto's first-half net earnings slid 65% as the global economic downturn slammed industrial demand, but the mining giant said it was confident about the future and planned to resume paying dividends. "Falling commodity prices were by far the largest factor in the reduced result," Morningstar senior equities analyst Mark Taylor said. Net earnings for the six months to 30 June fell to $2.45 billion from $6.95 billion in the same period a year earlier. Underlying earnings, excluding gains from acquisitions and other one-off items, more than halved to $2.57 billion from $5.53 billion. Rio's break fee of $195 million before tax paid to former suitor Chinalco was also excluded. "This looks a solid result in the context of the tough trading conditions during the period," Taylor said. "On balance, it was in line with expectations." The company, as expected, did not pay an interim dividend but said it planned a final payout. "The group expects to make a 2009 final dividend payment subject to satisfactory trading results," Rio said, adding the progress on its asset sales and prevailing market conditions would also play a role. For 2010 it said it expects to pay $1.75 billion, in line with its payout pool in 2008, albeit over a greater number of shares following its sale of $15.2 billion worth of new shares in June. Aluminium drags Rio's aluminium division was the biggest drag on the company's result, posting a loss of $689 million that was down from a profit of $1 billion previously. The miner said net earnings from its iron ore operations fell to $1.9 billion from $2.9 billion in the same period in the prior year. Morningstar's Taylor said the result was better than expected. Rio has negotiated iron ore price contracts with its Japanese, Korean and Taiwanese customers. But its relations with China, where Rio's chief iron ore negotiator Stern Hu remains in prison, apparently remain at an impasse. "Prices are below last year's record benchmark but are still the second highest ever achieved," Albanese said of iron ore, Rio's biggest earner. He said Rio's Pilbara iron ore production set a quarterly record in the second quarter, with a run rate exceeding 200 million tonnes a year. The company's copper and diamond operations posted net earnings of $472 million, down from $1.7 billion in the prior corresponding half. Rio's other operations, including Alcan Engineered Products, saw earnings fall from $6.9 billion to $2.4 billion. The bright spot was the energy and minerals division, which includes the company's uranium and coal operations. It saw net earnings rise to $1.6 billion from $672 million. Taylor said the outcome beat expectations. Asset sales continue The world's third-biggest miner is on track to meet commitments related to its $39 billion purchase of Alcan two years ago. "We are on track to meet the commitments we made in December last year to reduce operating expenditure and the capital expenditure estimate has been revised in line with market conditions," chief executive Tom Albanese said in a statement. Rio's asset sales have topped $8.5 billion over the past 18 months, including $3.7 billion so far this calendar year. Its latest transaction was announced earlier this week when it accepted a binding offer from Australian packaging group Amcor (AMC) of $2.03 billion for part of its Alcan packaging business. The group said its 2009 capital expenditure would total $5 billion. Cost savings totalled $800,000 in the first half and Rio said it was on target to achieve $2.5 billion in 2010. Morningstar's Taylor said Rio's cash flow from operations was better than expected. It fell 38% to $5.53 billion. Net debt stood at $39 billion.