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Lower commodity prices coupled with the uncertainty in Europe and the United States have hit another heavy trader of metals as the world’s second largest mining firm, Rio Tinto Group (LSE:RIO), reported a reduction of a more than a fifth of its profit for the first half of the year.
Rio Tinto said it made US$5.8 billion for the first six months of the 2012 financial year, down 22% from the US$7.58 billion it earned during the same period a year ago, which did not come as a surprise for the company.
“We have been signalling for some time that markets would remain volatile and we have seen challenging conditions in the first half,” said Rio Tinto’s Chief Executive, Tom Albanese.
On an underlying basis, an internal basis to assess performance, the group said some $1.9 billion was taken out of its earnings as a result of the decline in prices on all the major commodities it trades, excluding gold, which rose 14% compared to a year ago.
The firm produces iron ore, copper, aluminium, diamonds, and other minerals mined from a network of facilities in all six inhabited continents.
Maintaining A Rating
Nonetheless, down as it may seem, the company still made profit – at a reduced figure, which was what the investors at the London Stock Exchange today still focus on, trusting the firm’s management of its long-term outlook for the business.
Shares gained 92.5 pence, equivalent to 3%, to £32.23 at 11:54 AM GMT, following the announcement, which stated a firm platform from the management to maintain its A credit rating.
The company is not backing out on its plan to spend $16 billion expenditure, $7.6 billion of which has already been spent in the last six months.
“We have taken a considered approach to investment, committing capital only to projects that will deliver value for shareholders under any probable macroeconomic conditions,” stated Chairman Jan du Plessis, speaking positively of the long-term profitability of the business.
Its rivals, BHP Billiton and Xstrata, have earlier declared they will reduce their capital expenditures as their profits were also hurt by falling prices of commodities.
“All capital allocation decisions take into account our aim of maintaining a strong balance sheet and a single A credit rating,” Mr. du Plessis added.
Hence, despite a 30% decline in underlying earnings per share, Rio Tinto declared a 34% increase in dividend at 72.5 pence, in line with its progressive dividend policy.
“With our confidence in the long-term outlook, superior assets and high quality growth pipeline, we remain well positioned to deliver shareholder value over the long term,” CEO Albanese closed.
Company Spotlight
Rio Tinto Group is a global mining group comprised of London-listed Rio Tinto plc and Australian-quoted Rio Tinto Limited, producing minerals and metals, including iron ore, copper, aluminum, diamonds, coal, and other minerals.
Its headquarters is in London with executive offices in Melbourne, Australia.
