Rio Tinto 1st-Half Profit Rises 34 Percent to Record
Rio Tinto Group, the world's third- largest mining company, said first-half profit climbed 34 percent to a record as output and prices for iron ore and metals rose. The shares jumped to all-time highs in London and Sydney.
Net income increased to $2.2 billion, or $1.573 a share, in the six months ended June 30, from $1.6 billion, or $1.167 a share, a year earlier, London-based Rio said in a statement to the Australian Stock Exchange. Five analysts surveyed by Bloomberg had a median profit estimate of $1.99 billion.
Rio, led by Chief Executive Leigh Clifford, 57, is spending more than $1 billion expanding its iron ore operations to tap surging demand from China, the world's fastest-growing major economy. Prices for iron ore, used in steelmaking, and copper surged to record highs in the second half.
Higher Sales
Sales rose 44 percent to $8.7 billion, Rio said. The company will pay a dividend of 38.5 cents a share, compared with 32 cents a year ago.
The company's Hope Downs iron ore project in Western Australia may cost $1.5 billion to develop and approval may be given as early as this year, Clifford said.
Rio said in a separate statement it will spend $775 million on a titanium dioxide project in Madagascar and Canada. It will invest $585 million in a new mine and port in Madagascar, the biggest development project in the country's history, and a further $190 million expanding a processing plant in Quebec. The mine will start production in late 2008 at an initial annual capacity of 750,000 tons of ilmenite, a mineral used in paint.
``The iron ore results were very strong, as well as aluminum and copper,' said Jim Reid, senior fund manager in Sydney at AMP Capital Investors' Value Plus Fund, who helps manage more than $1.5 billion, including Rio shares. ``The Chinese economy is still strong and growth in the U.S. continues, which all bodes well for commodities volumes and prices.''
China's economy grew 9.5 percent in the first-half, benefiting mining companies such as Rio, BHP Billiton of Australia, the world's biggest, and London-based Anglo American Plc, the second-largest miner. BHP's first-half earnings may jump 85 percent while Anglo's may gain 49 percent, according to analysts surveys.
China Demand
Rio has ``a lot of confidence about China,'' Clifford said in an interview in London today. ``The government there is managing the economy very well.''
China accounted for 13 percent of Rio's first-half sales compared with 9 percent a year earlier, the company said today.
Shares in Rio rose 71 pence, or 3.7 percent, to a record 1,986 pence in London, valuing the company at 31.9 billion pounds ($56.8 billion). The shares rose 74 cents, or 1.5 percent, to close at a record high of A$49.91 on the Australian Stock Exchange.
Rio, the world's second-largest exporter of iron ore, the biggest supplier of pink diamonds used in jewelry and owner of stakes in the two biggest copper mines, said on July 20 that most of its operations were producing at or near capacity in the second quarter.
``Rio Tinto continues to offer investors attractive, high- quality volume growth,'' Paul Galloway and Grant Sporre, analysts in London at UBS AG, wrote in a note e-mailed today to clients. UBS raised its rating of Rio shares to ``Buy 2'' from ``Neutral 2.''
Costs Concern
Industrial minerals such as titanium dioxide feedstock accounted for 6 percent of underlying earnings.
``Although the rate of growth in the major economies slowed somewhat in the first half of this year, we are still seeing strong markets for our products,'' said Chairman Paul Skinner in the statement. ``In particular, demand from China remains strong.''
The company also said commodity prices in 2006 will remain ``above average'' due to tight supplies.
Operating costs rose to $5.8 billion from $4.8 billion a year ago, reflecting ``strong demand for people and services in mining areas, particularly Western Australia,'' Clifford said.
``Costs may increase further next year, and that's going to be a concern,'' said Michael Birch, who manages the equivalent of $80 million, including shares of Rio, at Wallace Funds Management in Sydney. ``The outlook comments are consistent with what the company has been saying. We expect Chinese demand to be strong.''
Copper
Income from copper, the largest contributor to earnings, more than doubled to $834 million in the first-half from a year ago, Rio said.
Prices for copper, used in pipes and wire, were 18 percent higher on the London Metal Exchange in the first six months of the year than in the same period a year earlier.
``Stocks on the LME have are lower and we have had supply disruption'' at other producers' operations, Clifford said. ``A few people have been caught short.''
Rio's copper business also benefited from higher production of molybdenum at its Kennecott unit in the U.S. Prices for molybdenum, a metal used in stainless steel, rose to a record high in the first half.
Rio owns 40 percent of a venture with New Orleans-based Freeport-McMoRan Copper & Gold Inc. that runs part of Indonesia's Grasberg, the world's largest gold mine and second-biggest copper mine. Copper output from Grasberg more than tripled in the first half from a year ago. It also holds 30 percent of Escondida in Chile, the world's largest copper mine.
Iron Ore Output
Net income from Rio's iron ore unit more than tripled to $681 million. It accounted for 31 percent of its profit, the second-largest contributor to earnings. Rio and its partners are spending $1.84 billion increasing iron ore production.
Rio's iron ore output rose 16 percent in the first half of the year, compared with the previous period, as benchmark annual prices rose 71.5 percent to a record from April 1. Price of coking coal, another steelmaking ingredient, gained 120 percent due to surging demand from China. Rio's coking coal output rose 17 percent in the six-month period.
Rio is China's biggest supplier of iron ore, accounting for one quarter of imports. China's steelmakers increased imports of iron ore by 34 percent in the first half of the year. The country accounted for 9 percent of Rio's sales in the first half of 2004.
To contact the reporter on this story:
Tan Hwee Ann in Melbourne at hatan@bloomberg.net;
Simon Casey in London at scasey4@bloomberg.net
Last Updated: August 3, 2005 13:47 EDT
Net income increased to $2.2 billion, or $1.573 a share, in the six months ended June 30, from $1.6 billion, or $1.167 a share, a year earlier, London-based Rio said in a statement to the Australian Stock Exchange. Five analysts surveyed by Bloomberg had a median profit estimate of $1.99 billion.
Rio, led by Chief Executive Leigh Clifford, 57, is spending more than $1 billion expanding its iron ore operations to tap surging demand from China, the world's fastest-growing major economy. Prices for iron ore, used in steelmaking, and copper surged to record highs in the second half.
Higher Sales
Sales rose 44 percent to $8.7 billion, Rio said. The company will pay a dividend of 38.5 cents a share, compared with 32 cents a year ago.
The company's Hope Downs iron ore project in Western Australia may cost $1.5 billion to develop and approval may be given as early as this year, Clifford said.
Rio said in a separate statement it will spend $775 million on a titanium dioxide project in Madagascar and Canada. It will invest $585 million in a new mine and port in Madagascar, the biggest development project in the country's history, and a further $190 million expanding a processing plant in Quebec. The mine will start production in late 2008 at an initial annual capacity of 750,000 tons of ilmenite, a mineral used in paint.
``The iron ore results were very strong, as well as aluminum and copper,' said Jim Reid, senior fund manager in Sydney at AMP Capital Investors' Value Plus Fund, who helps manage more than $1.5 billion, including Rio shares. ``The Chinese economy is still strong and growth in the U.S. continues, which all bodes well for commodities volumes and prices.''
China's economy grew 9.5 percent in the first-half, benefiting mining companies such as Rio, BHP Billiton of Australia, the world's biggest, and London-based Anglo American Plc, the second-largest miner. BHP's first-half earnings may jump 85 percent while Anglo's may gain 49 percent, according to analysts surveys.
China Demand
Rio has ``a lot of confidence about China,'' Clifford said in an interview in London today. ``The government there is managing the economy very well.''
China accounted for 13 percent of Rio's first-half sales compared with 9 percent a year earlier, the company said today.
Shares in Rio rose 71 pence, or 3.7 percent, to a record 1,986 pence in London, valuing the company at 31.9 billion pounds ($56.8 billion). The shares rose 74 cents, or 1.5 percent, to close at a record high of A$49.91 on the Australian Stock Exchange.
Rio, the world's second-largest exporter of iron ore, the biggest supplier of pink diamonds used in jewelry and owner of stakes in the two biggest copper mines, said on July 20 that most of its operations were producing at or near capacity in the second quarter.
``Rio Tinto continues to offer investors attractive, high- quality volume growth,'' Paul Galloway and Grant Sporre, analysts in London at UBS AG, wrote in a note e-mailed today to clients. UBS raised its rating of Rio shares to ``Buy 2'' from ``Neutral 2.''
Costs Concern
Industrial minerals such as titanium dioxide feedstock accounted for 6 percent of underlying earnings.
``Although the rate of growth in the major economies slowed somewhat in the first half of this year, we are still seeing strong markets for our products,'' said Chairman Paul Skinner in the statement. ``In particular, demand from China remains strong.''
The company also said commodity prices in 2006 will remain ``above average'' due to tight supplies.
Operating costs rose to $5.8 billion from $4.8 billion a year ago, reflecting ``strong demand for people and services in mining areas, particularly Western Australia,'' Clifford said.
``Costs may increase further next year, and that's going to be a concern,'' said Michael Birch, who manages the equivalent of $80 million, including shares of Rio, at Wallace Funds Management in Sydney. ``The outlook comments are consistent with what the company has been saying. We expect Chinese demand to be strong.''
Copper
Income from copper, the largest contributor to earnings, more than doubled to $834 million in the first-half from a year ago, Rio said.
Prices for copper, used in pipes and wire, were 18 percent higher on the London Metal Exchange in the first six months of the year than in the same period a year earlier.
``Stocks on the LME have are lower and we have had supply disruption'' at other producers' operations, Clifford said. ``A few people have been caught short.''
Rio's copper business also benefited from higher production of molybdenum at its Kennecott unit in the U.S. Prices for molybdenum, a metal used in stainless steel, rose to a record high in the first half.
Rio owns 40 percent of a venture with New Orleans-based Freeport-McMoRan Copper & Gold Inc. that runs part of Indonesia's Grasberg, the world's largest gold mine and second-biggest copper mine. Copper output from Grasberg more than tripled in the first half from a year ago. It also holds 30 percent of Escondida in Chile, the world's largest copper mine.
Iron Ore Output
Net income from Rio's iron ore unit more than tripled to $681 million. It accounted for 31 percent of its profit, the second-largest contributor to earnings. Rio and its partners are spending $1.84 billion increasing iron ore production.
Rio's iron ore output rose 16 percent in the first half of the year, compared with the previous period, as benchmark annual prices rose 71.5 percent to a record from April 1. Price of coking coal, another steelmaking ingredient, gained 120 percent due to surging demand from China. Rio's coking coal output rose 17 percent in the six-month period.
Rio is China's biggest supplier of iron ore, accounting for one quarter of imports. China's steelmakers increased imports of iron ore by 34 percent in the first half of the year. The country accounted for 9 percent of Rio's sales in the first half of 2004.
To contact the reporter on this story:
Tan Hwee Ann in Melbourne at hatan@bloomberg.net;
Simon Casey in London at scasey4@bloomberg.net
Last Updated: August 3, 2005 13:47 EDT
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