August 27, 2008

Rio Tinto Breaks All Records With Earnings of $6.91bn

By Sarah Arnott

Strong commodity prices are helping Rio Tinto, the world's second largest mining company, to beat all its records - and it is still saying no to rival and suitor BHP Billiton.

Rio Tinto's net earnings for the half-year to June ballooned by 113 per cent to $6.91bn (3.76bn) compared with the year before, on revenue up to $30bn from $13.9bn, including the acquisition of Alcan, the aluminium producer, a year ago. Strong demand for bulk products, particularly iron ore, alongside the contribution from Alcan, pushed underlying earnings up by $616m, the company said.

Not content to reap the rewards of the massive price hikes attributed to demand from developing economies such as China and India, Rio Tinto poured $3.7bn of capital expenditure into the business, nearly double the amount in the same period of 2007, and the group hit production records in key areas including iron ore, bauxite, alumina and aluminium. The integration of Alcan will generate synergies of $1.1bn from the end of next year, way above initial estimates of $600m.

Rio Tinto's management were at pains to stress the durability of Chinese demand despite the slowing of Western economies - partly in response to market concerns that commodity prices may be peaking, and partly to shore up the contention that BHP Billiton's $150bn offer undervalues the company.

"Commodity demand in China is not Olympics-driven or Beijing- driven, but a vast structural shift reflecting urbanisation and industrialisation of hundreds of millions of people across every province in the country," Tom Albanese, the chief executive said.

BHP was quick to reiterate its case yesterday. Alberto Cald- eron, the BHP chief commercial officer, said: "Rio Tinto has had strong results, and last week we had strong results, so we have all stayed where we are and the relative contributions in putting the two companies together remains the same."

But the Rio Tinto board is sticking to its guns. Paul Skinner, the chairman, said: "Our position with respect to BHP remains unchanged. The business has very strong momentum and excellent growth prospects."

Although Rio Tinto's share price closed down 0.56 per cent at 5,150p, City analysts were broadly positive. Nick Hatch, a head of research at ING Bank, said: "This was a stronger than expected performance and represents the last chance the group will have to demonstrate its financial strength ahead of expected rulings from regulators on the takeover proposal."

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