One of Rios many
iron ore operations
 
London, England — 10 August 2012 – Global mining giant Rio Tinto is sticking to its US$16 billion spending plans despite first-half profit falling by a third, predicting a modest pickup in the Chinese economy later this year that should stimulate demand for iron ore.

Reuters reports that the world’s second-largest iron ore producer has joined rival mining majors Anglo-American and Vale in reporting earnings battered by commodity price drops and stubbornly high costs.

Rio said underlying profit fell 34% to US$5.2 billion, as a sharp drop in iron ore prices, weakness in aluminium and lower copper volumes took their toll. That was above market expectations of a sharper drop to US$4.9 billion.

Prices for steelmaking ingredient iron ore have tumbled this year from 2011 highs, with benchmark prices touching their lowest in 2-1/2 years last week as demand from China, the world’s largest consumer of the commodity, eased.

Like its peers, Rio 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, this miner has stayed firm on its own spending plans for 2012.

Arguably the most China-dependent of the majors given its focus on iron ore, Rio has struck a more optimistic note than some rivals, pointing to a likely pickup in Chinese demand in the fourth quarter as government stimulus measures take effect. The miner said its order books were full, despite weak sentiment in Europe and a fragile U.S. recovery.

“We are still selling at full volume,” chief executive Tom Albanese said. He is sticking to a growth forecast of around 8% for China this year as the impact of measures to revive the economy would start to filter through.

China’s economy grew by an annual 7.6% in the second quarter, the slowest pace in three years.

Rio committed in June to spending US$4.2 billion to expand its iron ore operations, including growing its Pilbara operations in Australia to 353Mtpa of iron ore by 2015 as it battles to lead the race to feed China’s appetite for steel ingredients before growth there eases, flattening after 2030.

It signalled no change from that plan this week.

Analysts had been watching for news on Rio’s major Guinea iron ore project, Simandou, eyed by the market as a prime candidate for delays given the country’s instability. But Rio said it was on track for first commercial production in 2015.

Mongolian copper mine Oyu Tolgoi, potentially one of the world’s largest, is also on schedule, the miner said, with an agreement on power supply with China seen shortly.

Refocusing its portfolio, Rio announced a major retreat from its aluminium business last year, putting an estimated US$8 billion of assets up for sale. It later said it was also reviewing and could sell, spin off or list its diamond arm.

“Both sets of assets received interest,” chief financial officer Guy Elliott said. He agreed, however, that rock-bottom aluminium prices “’ Rio’s own aluminium division saw first-half profit halve “’ had not helped the sale of that suite of assets.

Elliott also dismissed market speculation that Rio could join its Canadian diamond mine Diavik with BHP Billiton’s nearby EKATI, also on the block, saying there were no current talks.

Source: Reuters Africa. For more information, click here.