Rios Second-Half Profit May Rise on Copper, Iron Ore

Rios Second-Half Profit May Rise on Copper, Iron Ore

Rio Tinto Group, the world’s third- largest mining company by sales, may say second-half profit rose 19 percent to a record as commodity prices soared last year and iron-ore production grew.

Net income advanced to $3.72 billion in the six months ended Dec. 31, from $3.03 billion a year earlier, according to the median estimate of six analysts surveyed by Bloomberg News. The estimate was calculated by subtracting first-half profit from analysts’ full-year forecasts. London-based Rio will release its earnings at about 5.p.m Sydney time today.

Chief Executive Officer Leigh Clifford, 59, who’s due to retire in September, has raised dividends and bought back shares after a five-year commodity rally fueled profit. That may be poised to end, with banks including UBS AG and Barclays Plc expecting some industrial metals prices to fall in 2007.

“Rio is obviously going to do well due to high commodity prices last year,” Paul McTaggart, an analyst at HSBC Holdings Plc. in London, said in an interview. “The challenge will be where it finds earnings growth in an environment of declining prices,” said McTaggart, who has a “neutral” rating on the shares.

Shares of Rio rose as much as A$1.24, or 1.6 percent, to A$77.84 on the Australian Stock Exchange and traded at A$77.80 at 12:14 p.m. Sydney time.

Iron Ore Prices

The company agreed with steelmakers to raise annual iron- ore contract prices by 9.5 percent for 2007, a fifth successive increase. Rio’s production rose 7 percent to 132.8 million metric tons in 2006. Clifford, who will be replaced by Tom Albanese, currently director of group resources, is spending more than $1 billion expanding iron-ore operations.

Economic growth in China, the largest customer for the raw material used to make steel, was 10.7 percent last year. Iron- ore imports rose 19 percent last year to a record, the Beijing- based customs office said Jan. 11.

Output of mined copper fell to 209,800 tons, from 210,700 tons, the company said Jan. 17. Copper also surged in 2006. Prices averaged $7,364 a metric ton on the London Metal Exchange in the second half, 92 percent higher than a year earlier. The metal, used in plumbing, will account for about 40 percent of Rio’s full-year profit and iron ore 29 percent, McTaggart said.

Record profit from commodities may prompt Rio to give back more cash to investors, said Simon Toyne, an analyst at Numis Securities Ltd. in London. The company returned $4 billion to shareholders through dividends and buybacks in the past year and has another $3 billion program underway.

`Lower Magnitude’

“We expect a further cash return of a similar, or slightly lower magnitude to be announced,” Toyne said in a report.

Rio is the first of eight miners on the U.K.’s FTSE 100 share index to report full-year earnings. London-based Anglo American Plc, the second-largest miner, will report on Feb. 21.

In October, Rio said it agreed to buy $303 million in Ivanhoe Mines Ltd., a Canadian company that plans to mine copper in Mongolia. That’s smaller than other deals completed by rivals last year, such as Xstrata Plc’s C$19 billion ($16.1 billion) takeover of Canadian nickel producer Falconbridge Ltd.

“The image of Rio is that it is quite cautious,” Luc Pez, a Paris-based analyst at Societe Generale, said by phone. “Some expect the new chief executive to depart from that and display a different style.”


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