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Rio beats forecasts despite slump

Rio Tinto was hit by falling commodity prices during the first-half, but the group still managed to beat market expectations.
August 8, 2012

During a period characterised by falling commodity prices, Anglo-Australian mining giant Rio Tinto beat market expectations by turning in first-half profits of $5.2bn (£3.31bn) after excluding impairment charges, derivative and foreign exchange movements. Admittedly, the profit was still a third down on last year’s interim figure, but the market reacted positively to the news and a one-third hike in the dividend.

IC TIP: Buy at 3162p

Price declines across a range of commodities reduced profits by $1.94bn, accouting for three quarters of the profit shortfall. Realised prices for copper and aluminium declined by 14 and 15 per cent respectively, while iron ore earnings sank by a fifth. The prices falls were chiefly responsible for a 39 per cent reduction in operating cashflows.

Commodity prices aside, Rio did manage to drive up production and sales volumes for iron ore due to increased capacity at the Pilbara ports, while a thermal coal expansion boosted volumes at Rio Tinto Coal Australia. Rio also confirmed that it was sticking to its $16bn spending plans for the year, the bulk of which is earmarked for its operations in the Pilbara region of Western Australia.

In common with industry peers, Rio has been struggling with rising energy and costs costs, which pared back profits by $400m over the first six months.

Cannacord Genuity expects full-year EPS of 516¢ (2011: 792¢), rising to 563¢ in 2013.

RIO TINTO (RIO)
ORD PRICE:3,162pMARKET VALUE**:£60.8bn
TOUCH:3,162-3,164p12-MONTH HIGH:4,029pLow: 2,637p
DIVIDEND YIELD:3.3%PE RATIO:21
NET ASSET VALUE:3,015¢*NET DEBT:20%

Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
201129.111.138954.0
201225.36.831872.5
% change-13-39-18+34

Ex-div:15 Aug

Payment:13 Sep

£1 = $1.56 * includes intangible assets of $16.2bn, or 878¢ a share ** reflects both UK & Australian listed shares