JOHANNESBURG (miningweekly.com) – Lower commodity prices in the six months to June 30 contributed to diversified mining giant Rio Tinto reporting lower earnings for the period.

The group on Thursday posted a 71% drop in first-half net earnings to $1.72-billion, compared with net earnings of $5.88-billion in the first half of 2012, while underlying earnings of $4.2-billion were down 18% on the $5.15-billion underlying earnings reported in the 2012 half-year.

Net earnings had included noncash exchange losses of $1.9-billion and a $300-million write-off of waste stripping costs and damaged equipment at the group’s Kennecott Utah Copper operation.

Further, Rio Tinto pointed out that the average prices for nearly all the commodities it produces, except diamonds, had declined during the six months.

The average Platts price for 62% iron Pilbara fines declined by 4%, on average, compared with the 2012 first-half, while hard coking coal benchmark prices were 24% lower. Copper prices were down 7% and the LME prices for gold and aluminium were 8% lower.

The effect of the price movements in the six months ended June resulted in a $1.2-billion decrease in underlying earnings.

Liberum Capital market analyst Richard Knights said in a note to clients that the underlying earnings of $4.2-billion missed the firm’s estimate of $4.6-billion. “At first glance, the miss appears to be in iron-ore, where net earnings came in at $4.3-billion versus our $4.6-billion estimate.”

Despite the lower earnings, chairperson Jan du Plessis stated that Rio Tinto’s business had demonstrated “considerable resilience against a backdrop of continuing market volatility”.

He noted that cash flows from operations, which increased by 1% to $8-million, had been strong, driven by the group’s cost savings programmes.

Rio Tinto had reduced its capital expenditure (capex) by 9% to $6.9-billion in the six months to June, compared with capex of $7.6-million in the first half of 2012. Total capex for 2013 would amount to $14-billion, a 20% decrease on that spent in 2012.

The group’s planned cost cuts had also gathered momentum, with $1.5-billion in cost improvements achieved. This included $977-million from operating cost savings and $483-million from lower exploration and evaluation expenditure.

Knights commented that the $1.5-billion in savings represented 75% of the targeted $2-billion in cost savings for the full year.

“Capex has been reduced, approved growth projects are on track and operations are performing well. We have set ourselves firmly on the path toward becoming a leaner, more tightly run business,” said Rio Tinto CEO Sam Walsh.

He warned, however, that the medium-term economic outlook remained volatile.

“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 said.

PRODUCTION
Rio Tinto’s iron-ore operations recorded underlying earnings of $4.27-billion, 14% lower than that earned in the 2012 first-half, mainly owing to lower iron-ore prices and a legacy royalty claim.

Iron-ore output attributable to Rio Tinto amounted to 100.1-million tonnes, a 6% increase on the 94.3-million tonnes produced in the 2012 interim period.

Sales revenues were down 4%, from $12.25-billion in the 2012 interim period to $11.8-million in the six months under review.

Further, Rio Tinto Alcan achieved a $99-million increase in underlying earnings to $123-million for the six months ended June 30, despite an 8% decline in the LME aluminium price.

Increased volumes, a rise in market premia and productivity improvements were the main drivers of the first-half momentum, the group stated.

Rio Tinto Alcan increased the attributable production of bauxite by 16% year-on-year to 16.75-million tonnes, while the production of alumina increased by 7% year-on-year to 3.36-million tonnes and aluminium by 14% to 1.2-million tonnes.

The group noted that the higher production volumes were boosted by a return to full production at the Alma smelter, a steady ramp-up of production at the expanded Yarwun alumina refinery and a strong operational performance at Weipa, driven by higher bauxite demand.

In addition, the group’s refined copper production increased by 22% year-on-year to 150 800 tonnes.

Meanwhile, the group’s energy business recorded an underlying loss of $52-million for the six months ended June, compared with 2012 first-half earnings of $320-million, primarily owing to lower prices and the absence of any gains on the divestment of exploration properties.

Hard coking coal production for the interim period decreased by 4% to 3.55-million tonnes, while semi-soft coking coal output increased by 36% to 2.2-million tonnes.

Thermal coal output was up 24% year-on-year to 11-million tonnes.

Uranium production also increased by 24% year-on-year to 4.7-million pounds.