how vulnerable is rio tinto?, page-11

Analysis in the australian...

Iron ore represents at least 70 per cent of the company's earnings and rising at a time iron ore prices are falling.

In 2011 they hit a record a record $US180 ($A176.25) a tonne but are currently hovering around $US130 ($A127.29) a tonne.

Rio has been criticised in recent times for not being diversified enough but that may help it now, with iron ore prices still historically high and proving resilient compared to other commodities.

Production costs are about $US40 a tonne but will rise as the company expands its Pilbara iron ore business to 353 million tonnes per annum.

Chief executive Tom Albanese described the second quarter result as strong with global economic conditions and sentiment dropping markedly in the second quarter.

"Our investment program remains resilient to this market volatility, as our tier one projects are robust under any probable macroeconomic scenario," he said.

Fat Prophets resource analyst David Lennox told AAP the company should report very good half year earnings depending on the amount of production captured that makes up the difference in price variance.

The company reported full year net profit of $US15.55 billion last year but that is expected to drop to below $11 billion in 2012.

"They are lucky they are in a sweet spot at the moment ... because had 70 per cent of their earnings been in aluminium or copper they story would have been very different," he said.

Provided iron ore demand held up in China, which was expected, Rio's earnings were safe, he said.