Rio’s Record

By Glenn Dyer | More Articles by Glenn Dyer

A solid result from Rio Tinto Group, the world’s third-largest mining company with full-year profit rising 43 per cent to a record $US 7.44 billion (around $A9.6 billion)

The company said the outlook for commodities is positive with prices to remain above long-run averages in 2007, pointing to expectations of an improvement on 2006’srecord result.

To this end annual dividend has been raised 30 per cent to $US1.04 a share from 80 USc a share, a sure sign Rio sees the strong conditions continuing for a while

The Chinese economy, the main source of demand for Rio’s output of coal, iron ore and copper, is expected to grow at double digit pace again for the fifth year in a row.

Rio’s result was the second highest net profit for an Australian company to date after BHP Billiton’s 2006 figures for the year to June 30 last.

Rio said economic growth in China, which has been driving demand for most of its products, remains strong and well-balanced, but it does expect to see some moderation in global growth in 2007.

“Looking to 2007, there are a number of uncertainties in the global economy, not least the direction of inflation and interest rates in major economies,” Chairman Paul Skinner said in a statement accompanying the result.

“We expect some moderation of global economic growth, although confidence in Japan and Europe is increasing.

“Growth in China, which is critical to the demand outlook for many of our products remains strong and well-balanced.”

Mr Skinner said the outlook for commodities was strong and Rio continues to view the overall outlook for commodities as positive, with prices remaining well above their long run averages in 2007.”

Underlying earnings rose 48 per cent to $US7.338 billion ($A9.46 billion).

Retiring CEO, Leigh Clifford, said the group had achieved record annual production in iron ore, alumina, US coal and molybdenum.

“Operations generally recovered well from the effect of adverse weather conditions early in the year, particularly the cyclones which hit northern Australia,” he said.

But the operating and project environment for mining companies remains challenging, with shortages in key mining supplies and skills leading to continues industry-wide cost pressures and delays.

“We remain focused on meeting these challenges through improving productivity and the spread of best practice across the group, and are alert to the need not to lock in today’s cost levels for the future,” Mr Clifford said.

He said the expansion of Rio Tinto’s iron ore operations in the Pilbara in Western Australia is continuing, with the capacity expansion of Yandicoogina mine and Dampier port on budget and on or ahead of schedule.

“The development of the Hope Downs project is well under way, with first production anticipated in the first quarter of 2008,” Mr Clifford said.

He said iron ore was an important part of the business.

“With substantial and increasing resources of iron ore as well as an established infrastructure and market presence, we are committed to this high margin business, which has an excellent long term growth outlook,” Mr Clifford said.

To this end the Rio board yesterday approved an expansion in its iron ore export capacity in the Pilbara region of Western Australia.

Rio said that the port of Cape Lambert will be expanded at a cost of $US860 million ($A1.11 billion), which will lift annual capacity to 80 million tonnes from 55 million.

The expansion is due to be finished at the end of next year after which Rio Tinto’s mine, rail and port capacity in the Pilbara will be matched and capable of exporting 220 million tonnes or iron ore a year.

Rio’s iron ore boss, Sam Walsh said in a statement that the Cape Lambert expansion, “our third recent port expansion, will allow Rio Tinto to continue to maximise its production from the Pilbara, retaining its position as Australia’s leading iron ore producer and a major global player.”

Rio will contribute $US456 million ($A588.12 million) to the expansion of the port, which is owned by Robe River Iron Associates and is operated by Pilbara Iron, a subsidiary of Rio Tinto.

Rio Tinto said a further $US130 million ($A167.67 million) will be invested in sustaining and environmental capital works at the Cape Lambert port to support the increased levels of production.

The Cape Lambert upgrade brings Rio Tinto’s expenditure in the Pilbara on infrastructure projects and facilities development close to $US5 billion ($A6.45 billion) in the past three and a bit years.

Rio said that cash flow from operations was up 36 per cent in 2006 to $US11.196 billion or $A14.44 billion, with net profit from iron ore operations rising to $US2.279 billion ($A2.94 billion), from $US1.722 billion ($A2.22 billion) in 2005.

However, the biggest earner was copper which generated net profit of $US3.562 billion ($A4.59 billion), up from $US2.020 billion ($A2.61 billion), on the back of strong prices (but which faded in the December quarter).

The average copper price in 2006 was 306 US cents per lb, up 84 per cent on the average 2005 price, while gold prices rose 36 per cent but molybdenum fell.

“The total impact of prices changes, net of the effects of provisional pricing movements, increased earnings by $US1.705 billion,” Rio Tinto said in yesterday’s statement.

Net profit from aluminium rose to $US746 million ($A962.15 million) from $US392 million ($A505.58 million) in 2005 and earnings from the energy unit, which includes Rio Tinto Coal, eased a touch to $US711 million ($A917.01 million) from $US733 million ($A945.38 million) in 2005.

Rio Tinto’s shares jumped $1.69 higher to finish at $78.29 yesterday. They were just over $A71 at the start of January.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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