Rio Tinto spent much of the first half of 2009 pulling itself back to its feet after the ill-timed acquisition of aluminium producer Alcan in 2007, including a spectacular $15.2bn (£9.2bn) capital raising to rebuild its battered balance sheet.
Rio paid $38bn for Alcan at the top of the market, making it the world's biggest aluminium producer, but saddling it with a gargantuan debt pile just as the commodity bubble burst. In fact, a 50 per cent drop in the aluminium price meant Alcan's underlying earnings fell by a massive $2.1bn in the first half of 2009.
Lower commodity prices wiped $4.7bn off group earnings, with all of Rio's major commodities suffering declines. Average copper prices halved, while molybdenum - used to make specialist steel alloys and temperature resistant parts - was 74 per cent cheaper than a year earlier. Thermal coal contracts were struck at between $70 and $72 per tonne, 44 per cent lower than the year before. Coking coal, also used in steel production, saw contracts set at between $115 and $130 a tonne, 60 per cent lower than the record prices seen a year earlier.
The miner also settled iron ore contracts with customers in Japan, Korea and Taiwan at between 33 and 44 per cent lower than last year. However, there was no news on discussions with Chinese buyers, the source of much tension throughout the year, which culminated in the recent arrest of a number of Rio executives in China on charges of industrial espionage. The Chinese authorities insist this had nothing to do with Rio's decision to back out of a proposed sale of stakes in key assets to a state-backed aluminium producer, Chinalco. But not everyone believes them.
The sale of Alcan's packaging division for $2bn takes another small bite out of the $30bn net debt Rio's still carrying, even after the rights issue. Broker Evolution Securities expects full year pre-tax profits of $7.8bn and EPS of 293¢ (2008: $8.4bn/767¢).
RIO TINTO (RIO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,364p | MARKET VALUE**: | £ 53.7bn | |
| TOUCH: | 2,363-2,364p | HIGH: | 4,439p | LOW: 822p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 117 | |
| NET ASSET VALUE**: | 800¢* | NET DEBT: | 205% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit (£bn) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 27.2 | 9.82 | 443 | 36.3 |
| 2009 | 18.8 | 4.39 | 189 | nil |
| % change | -31 | -55 | -57 | -100 |
* includes intangible assets of $20.5bn or 961¢ a share ** Market value and net asset value includes Australian listed shares £1=$1.65 | ||||
