PERTH (miningweekly.com) - Mining giant Rio Tinto has reported record underlying earnings and cash flows for 2011, despite increasingly unpredictable markets.

Underlying earnings reached $15.5-billion for the financial year, an 11% improvement on the previous corresponding period, while cash flows from operations were up by 16% to $27.4-billion.

“Today’s set of strong results was primarily driven by the impressive performance of our iron-ore operations and higher prices for many of our products,” said Rio CEO Tom Albanese.

“Our Australian business rapidly recovered from the severe flooding in the first half of the year. This enabled us to take advantage of the strong market conditions.”

Albanese noted, however, that not all of the company’s divisions were enjoying similar success.

“At our November investor seminar, we noted that uncertain macroeconomic conditions, together with stronger currencies in some regions and high raw material costs would result in impairment of our aluminium business.”

Albanese said that under these conditions, the full value of Rio’s planned improvements in cash margins from existing aluminium operations and from the successful implementation of growth projects was not reflected in the market valuation used for impairment purposes.

The combination of these factors led Rio to write off some $8.9-billion of its aluminium assets in 2011, and in total, impairments were $9.3-billion, which led to a 59% decline in net earnings to $5.8-billion.

“As the acquisition of Alcan happened on my watch, I felt it only right not to be considered for an annual bonus this year,” Albanese said.

Looking ahead, Albanese noted that growth in demand for alunimium remained strong, adding, however, that the industry had been running surpluses for the past five years.

“Chinese production is still tracking international demand, but has shifted more towards the north-west, where stranded coal is being used to generate electricity.”

Albanese said that Rio was working diligently on improving the performance of its alunimium business, and completed a strategic review during 2011.

“This has led us to take some difficult but necessary decisions, such as the identification of a number of assets that no longer fit our strategy and so will be divested. We have refocused on our core assets, in particular our world-class bauxite resources, industry-leading technologies and our modern portfolio of large-scale, long-life, hydro-based smelters.

“I firmly believe we are on track to secure our position as the lowest-cost producer in the aluminium industry,” he added.

Meanwhile, Albanese noted that despite the uncertainty in the global economic markets, Rio would continue with its investment in its high reward project portfolio, while also tackling cost issues.

“I believe that we have the highest-value growth programme in the industry and our iron-ore expansions in the Pilbara are second to none. We are on track to increase the capacity of our low-cost iron-ore operations in Western Australia by over 50% by the end of the first half of 2015, ensuring that we are ideally placed to capture the world’s growing demand for steel.”

Albanese said that the growth programme was complemented by targeted mergers and acquisitions, and exploration activity to provide the company with further growth options.

“While our growth programme looks to the medium and longer term, we are mindful of short-term uncertainties. We have seen some moderation in market expectations for global gross domestic product growth in recent months, but it is still forecast to grow by around 3.3% in 2012.”

He added that growth in excess of 8% in 2012 in China continued to underline the company’s expectations of a “soft landing” in its key Chinese market.

“Long-term, the drivers of industrialisation and urbanization in emerging economies remain in place and will lead to an unprecedented increase in demand for metals and minerals over the next ten to 20 years.”

Albanese added that it was increasingly apparent that the mining industry as a whole would struggle to bring new supply to the market quickly enough to meet this heightened demand.

“We have a high-quality growth programme, strong balance sheet, proven project execution skills and leadership in innovative technologies. This gives me confidence that we are favourably positioned to deliver shareholder value over the long term.”
 

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