August 20, 2009 - 3:44PM Rio Tinto Ltd is confident about its future after first half profit was slashed by 67.4 per cent due to a slump in major commodities prices, forcing the company to withdraw its interim dividend.
The world's third-biggest miner said price falls cut $US4.670 billion ($A5.63 billion) from its bottom line and it remained cautious about the outlook.
But a sharp reduction in its massive debt bill, cost savings, continuing strong output of iron ore and a prime asset base ensured it was well placed for a recovery in the global economy and markets.
"Rio Tinto is taking the right steps to emerge from this challenging period as a stronger, fitter business," chief executive Tom Albanese said in a statement on Thursday.
"We will continue to focus rigorously on operational excellence, delivering reliable supply to our customers and value to our shareholders, while preserving future growth options.
"We look to the future with confidence."
Rio Tinto made a net profit of $US2.451 billion ($A2.96 billion) for the six months ended June 30, down from $US6.95 billion in the previous corresponding period.
Prices declined for nearly all of its major commodities, with average copper and aluminium prices down 50 per cent over the half year.
Underlying earnings fell 54 per cent to $US2.565 ($A3.09) billion, which was worse than expected.
The result was below the consensus forecast of 14 analysts for $US2.681 billion ($A3.19 billion) - or a decline of 51 per cent.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) was $US6.089 billion ($A7.34 billion), down 47 per cent.
Rio Tinto chairman Jan du Plessis said the company took "swift and decisive action" to respond to the global economic crisis and sharp falls in metals and minerals prices.
It used the proceeds of a $US15 billion ($A18.09 billion) equity raising in July to reduce its debt by $US14.8 ($A17.85) billion to $US39.1 billion ($A47.16 billion) at June 30.
"There is more work to do, but we are better positioned with renewed financial strength and a leaner cost base," Mr du Plessis said.
"We remain cautious about the recent rally in prices.
"However, the expectation that development in emerging markets will generate underlying strength in metals and minerals demand over the long term remains broadly unchanged."
Mr Albanese said while market conditions were tough, the company was on track to meet commitments made in December to reduce operating expenditure as it continued to pursue the divestment of non-core assets.
"Despite difficult markets, our businesses are running smoothly," he said.
Capital expenditure is expected to be about $5 billion in calendar 2009 and $2.5 billion for 2010.
But in light of the improving economic climate, the group is reviewing its expenditure plans for 2010.
Mr Albanese said the group's Rio Tinto Alcan unit was impacted by "very tough" trading conditions and dramatic price declines.
"We have acted aggressively to push costs down, including curtailing production at our higher cost operations," he said.
The aluminium business made a net earnings loss of $US689 million ($A831.02 million), compared to a profit of $US1.042 billion in 2008.
Its flagship iron ore business earned $US1.932 billion ($A2.33 billion), down from $US2.884 billion last year.
Rio Tinto noted that it had settled 2009 iron ore supply contracts with customers in Japan, Korea and Taiwan, with fines prices 33 per cent lower than last year.
"Deliveries continue to other customers on a provisional price or spot sales basis," it said, referring to Chinese customers.
About half of the iron ore that Rio Tinto produced in the first six months of 2009 was sold on a spot market basis.
Net earnings from copper and diamonds fell to $US472 million ($A569.29 million), from $US1.693 billion.
Energy and minerals earnings fell to $US1.583 billion ($A1.91 billion), from $US672 million.
Rio Tinto did not pay an interim dividend, as previously flagged but it expects to pay a 2009 final dividend if its trading results are satisfactory.
RIO Price at posting:
$58.03 Sentiment: None Disclosure: Not Held
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