Rio Tinto: Record Profit but Below Expectations

Mining giant Rio Tinto has delivered Thursday a result below the consensus despite record earnings in the first half, rising costs and currency effects have overshadowed the strong performance of metal prices.

Buoyed by sales of iron ore to China, recurring profit jumped 35% to $7.8 billion over the six months to June against 8.03 billion expected by financial analysts.
This is a record profit for first half, however, this figure is lower than the second half of 2010.

Rio Tinto, which announced to increase by two billion dollars a share buyback program of five billion, also raised its interim dividend to $0.54 against $0.45 a year ago.

The group, however, warned against the rising costs and the risks to economic growth despite the Chinese demand.

PRICES EXPECTED TO REMAIN HIGH

“They are missing (consensus) very little, largely because of costs. They suffered currency increasing, energy costs increasing, rising labor costs and costs of production”, said an analyst of RBC Capital Markets.

“If the market was bullish, it would not matter. But the warning on costs (…) worried the market, global growth worries the market and Rio, like other mining groups, economic conditions are volatile.”

Rio Tinto has 30% stake in Chile’s Escondida mine, the largest copper mine in the world, was affected by a strike of nearly two weeks.

Like its rivals Anglo American and Xstrata, Rio Tinto expects that the strength of commodity prices is maintained while the mining companies are struggling to meet demand. Its chief executive Tom Albanese expects average prices up for the rest of 2011 and early 2012.

Like its rivals Anglo American and Xstrata, Rio Tinto expects that the strength of commodity prices is maintained while the mining companies are struggling to meet demand. Its chief executive Tom Albanese expects average prices up for the rest of 2011 and early 2012.