Rio Tinto reports 71% slide in first-half profit

Anglo-Australian mining giant Rio Tinto on Thursday said net profit for the first half of 2013 plunged 71 percent to US$1.72 billion with the company warning the medium-term outlook remains volatile. Underlying earnings in the six months to June, the measure preferred by the company, were down 18 percent to US$4.22 billion, in line with expectations, hit by weaker iron ore, copper and coal prices. The difference between profit and underlying earnings stems from US$2.5 billion in one-off costs, including exchange losses on debt and a US$340 million write-off related to a collapsed pit wall at its Bingham Canyon copper mine in the United States. Chief executive Sam Walsh said the company had achieved US$1.5 billion in cost reductions in the six months, while Rio posted record first-half iron ore production and stronger copper volumes. But softer commodity prices and slowing demand from key customer China hurt performance. Rio has invested billions of dollars in recent years expanding production of iron ore, coal, copper and other goods needed to fuel China's booming economy. "The medium-term economic outlook remains volatile with a broader range of outcomes now possible," said Walsh. "Chinese economic growth has decelerated so far this year and is unlikely to recover significantly in the second half, but we do not expect a hard landing. "This global economic volatility only serves to highlight the need to build a stronger and more resilient business," he added. Walsh, who formally replaced Tom Albanese at the helm in February after Rio posted its first annual loss in 18 years, said aggressive cost-cutting meant the company was "firmly on the path toward becoming a leaner, more tightly-run business". "We are seeing good early results of our business performance initiatives in our pursuit of greater value for shareholders," he said in announcing a 15 percent rise in dividends to 83.5 cents per share. "Capital expenditure has been reduced, approved growth projects are on track and operations are performing well." Capital expenditure was slashed by nine percent to $7 billion in the first half with full-year costs set to come in around $14 billion, 20 percent lower than the previous year. Iron ore dominated Rio's half-year performance, delivering earnings of US$4.7 billion, helped by better spot prices for the key steelmaking ingredient. The coal division posted a US$52 million (Aus$58.06 million) loss. Chairman Jan du Plessis said the business has demonstrated "considerable resilience against a backdrop of continuing market volatility" despite the plunging net profit. "Cash flows from operations were strong, driven by our cost-savings programmes but lower prices and a higher tax rate led to a reduction in underlying earnings to $4.2 billion in the first half of 2013," he said. "Our strategy to invest in and operate large, long-life, low-cost, expandable operations remains unchanged. "Sam and his team are seeking to simplify the portfolio through the divestment of non-core assets but only where we can realise value for shareholders." Rio Tinto shares closed 1.5 percent higher in Australia at Aus$59.48, with the results released after the market closed. The company's shares have fallen heavily this year.