Wed Aug 8, 2012
LONDON Aug 8 (Reuters) - Global miner Rio Tinto said on Wednesday it would stick to its $16 billion spending plan for the year, even as weaker prices dragged first half profits 34 percent lower, and predicted a rebound for the Chinese economy later this year.
Rio, the world's second-largest iron ore producer, said underlying earnings fell to $5.2 billion, though that beat consensus analyst expectations of $4.9 billion. It also raised its dividend by 34 percent to 72.5 U.S. cents.
Rio Tinto joins major rivals Anglo-American Plc and Xstrata Plc in reporting earnings dented by falling prices and stubbornly high costs. Vale, the world's largest producer of iron ore, reported its worse second quarter since 2007 last month, blaming slowing demand for the steelmaking ingredient.
Rio, arguably the most China-dependent of the majors given its focus on iron ore, struck a more optimistic note than some of its rivals, pointing to a likely pickup in Chinese demand in the fourth quarter, as government stimulus measures flow through. The miner also said it saw signs stifling cost pressures were starting to ease.
"We have been signalling for some time that markets would remain volatile and we have seen challenging conditions in the first half," Rio Tinto Chief Executive Tom Albanese said.
"Although sentiment remains negative in Europe and the U.S. recovery is still fragile, our order books are full and we expect Chinese GDP growth to be around eight per cent in 2012. We expect to see signs of improvements in Chinese economic activity by the end of the year."
Rio, like its diversified peers, is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook. But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own plans to date.
Rio's growth projects, crucial to diversify earnings from iron ore, are considered to be more incremental and therefore less contentious than those of rival BHP Billiton, which has said it is reviewing the sequence and pace of its major investments.
Shares in Rio were trading 0.85 percent higher in London at 3,154 pence at 0730 GMT, against a 0.5 percent drop in the broader mining sector.
"The biggest two things that stand out are the price impact - the impact of lower prices reduced earnings by about $1.9 billion - and costs," RBC analyst Des Kilalea said.
"Cash costs took 7 or 8 percent of earnings which is quite a hit, not unexpected, but it just shows you the cost pressures that these guys are under."
LONDON Aug 8 (Reuters) - Global miner Rio Tinto said on Wednesday it would stick to its $16 billion spending plan for the year, even as weaker prices dragged first half profits 34 percent lower, and predicted a rebound for the Chinese economy later this year.
Rio, the world's second-largest iron ore producer, said underlying earnings fell to $5.2 billion, though that beat consensus analyst expectations of $4.9 billion. It also raised its dividend by 34 percent to 72.5 U.S. cents.
Rio Tinto joins major rivals Anglo-American Plc and Xstrata Plc in reporting earnings dented by falling prices and stubbornly high costs. Vale, the world's largest producer of iron ore, reported its worse second quarter since 2007 last month, blaming slowing demand for the steelmaking ingredient.
Rio, arguably the most China-dependent of the majors given its focus on iron ore, struck a more optimistic note than some of its rivals, pointing to a likely pickup in Chinese demand in the fourth quarter, as government stimulus measures flow through. The miner also said it saw signs stifling cost pressures were starting to ease.
"We have been signalling for some time that markets would remain volatile and we have seen challenging conditions in the first half," Rio Tinto Chief Executive Tom Albanese said.
"Although sentiment remains negative in Europe and the U.S. recovery is still fragile, our order books are full and we expect Chinese GDP growth to be around eight per cent in 2012. We expect to see signs of improvements in Chinese economic activity by the end of the year."
Rio, like its diversified peers, is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook. But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own plans to date.
Rio's growth projects, crucial to diversify earnings from iron ore, are considered to be more incremental and therefore less contentious than those of rival BHP Billiton, which has said it is reviewing the sequence and pace of its major investments.
Shares in Rio were trading 0.85 percent higher in London at 3,154 pence at 0730 GMT, against a 0.5 percent drop in the broader mining sector.
"The biggest two things that stand out are the price impact - the impact of lower prices reduced earnings by about $1.9 billion - and costs," RBC analyst Des Kilalea said.
"Cash costs took 7 or 8 percent of earnings which is quite a hit, not unexpected, but it just shows you the cost pressures that these guys are under."
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