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Rio Tinto bounces back with US$3.67 bn annual profit

SYDNEY: Anglo-Australian mining giant Rio Tinto staged a dramatic turnaround in 2013 to report a US$3.67 billion annual net profit after a major cost-cutting drive that saw thousands of workers sacked and capital spending slashed.
Rio’s return to the black caps a concerted belt-tightening drive by new chief Sam Walsh, who was brought in with a mission to turn around the firm, which lost US$3.03 billion in 2012 — its first plunge into the red in 18 years — after US$14.36 billion in writedowns.
That disaster claimed the scalp of former boss Tom Albanese.
“These strong results reflect the progress we are making to transform our business and demonstrate how we are fulfilling our commitments to improve performance, strengthen the balance sheet and deliver greater value for shareholders,” said Walsh.
“We have achieved underlying earnings of US$10.2 billion, exceeded our cost reduction targets and set production records. In turn, this has enhanced our cash flow generation and lowered net debt.”
The results were again weighed by writedowns worth US$3.43 billion on projects including Mongolia’s Oyu Tolgoi copper and gold mine and the Gove Alumina project in northern Australia.
Before writedowns Rio recorded a profit of $10.22 billion, a 10 percent premium on last year and ahead of analyst forecasts of $9.7 billion.
Rio said it had slashed 4,000 jobs across its operations in 2013 and divested a further 3,300 positions out of the company through asset sales.
The jettisoning of underperforming assets continued apace, with divestments worth US$3.5 billion announced or completed in 2013 as Rio narrows its focus to its major businesses of iron ore, coal and copper.
Capital expenditure was reduced by 26 percent to US$12.9 billion and forecast to be curtailed further in 2014 to an estimated US$11 billion and US$8 billion the year after.
The company also set annual production records in its key iron ore and electricity coal businesses as well as bauxite, with copper also rallying strongly.
Increased volumes added US$538 million, primarily due to expansion of capacity at Rio’s flagship Pilbara iron ore operations in western Australia.
Underlying iron ore earnings were up seven percent on 2012 at US$9.86 billion due to record sales volumes, “marginally” higher prices, an easing in the Australian dollar and cost-cutting in the business.
Rio said its capacity expansion project to 290 million tonnes would be completed in the first half of 2014, with further ramp-up to 330 million tonnes in 2015.
It flagged output of 295 million tonnes this year.
Electricity coal production was up 11 percent on 2012 and steelmaking coal was two percent higher, but underlying earnings plunged 89 percent to $33 million due to significantly lower prices.
Production guidance for 2014 was 16.5 million tonnes for electricity coal and 8.5 million tonnes for steelmaking coal.
Copper output was up 15 percent and refined copper ahead seven percent from 2012, though earnings were down 22 percent at $821 million reflecting lower prices, a pit wall slide in Utah and writedowns worth $131 million.
Commodity price movements wiped US$1.29 billion off the bottom line compared with 2012, but improvements in the US dollar exchange rate boosted results by US$1.01 billion.
Rio declared a $1.92 dividend per share, 15 percent better than in 2012 which Walsh said “reflects our confidence in the business and its attractive prospects.”