Rio relies on iron ore for good numbers

Rio Tinto is expected to post a half-year profit of over $US4 billion this week, with strong iron ore sales to overcome predicted losses in other commodities.

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Analysts are predicting a massive $US4.5 billion ($A5.07 billion) in earnings from iron ore in the six months to June 30, which will be bigger than its overall profit for the same period.

Losses in its coal and aluminium segments are set to push overall underlying profit down 18 per cent from a year ago to $US4.2 billion ($A4.74 billion), according to a consensus analysts’ view.

Rio also faces an unknown amount of one-off writedowns that will reduce its bottom line.

Chief executive Sam Walsh took over from Tom Albanese in February, on the same day Rio announced $US14 billion in writedowns on its aluminium and African coal assets, which caused a $US3 billion annual loss.

The market is not expecting writedowns to be as large this time, but the company must still account for adverse events such as a collapsed wall that damaged a US copper mine, a higher tax rate, and the loss of a legal dispute with Gina Rinehart over royalties.

Fortunately for Rio, the iron ore spot price was better than expected during the first half of 2013, averaging above $US133 a tonne.

Rio also shipped a record 119 million tonnes of iron ore during that time.

But analysts have forecast losses in the company’s coal and aluminium divisions of $US27 million ($A30.45 million) and $US44 million ($A49.62 million) respectively.

Deutsche Bank analyst Paul Young said the investment community would focus on Rio’s ability to cut costs and capital expenditure guidance.

He predicts about 50 per cent of its $US2 billion cost cutting target for 2013 would have been achieved.

Further information on asset sales would be well received, Mr Young said, given Mr Walsh promised to aggressively pursue them.

An increase in Rio’s interim dividend of US83.5 cents a share from US72.5 cents is forecast, in line with its practice of paying half the previous year’s payout.

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