MINING giant Rio Tinto has retained a positive economic outlook in the face of plummeting first half profits, due in part to sluggish demand from China.
Despite posting results which exceeded the market expectations of about US$4.94 billion, Rio’s first half underlying profit of US$5.2 billion showed a 34 per cent decrease.
The company attributed the US$2.6 billion profit drop to lower commodity prices, as well as increased operating costs and weaker production.
“Lower prices were the main driver of a reduction in underlying earnings in the first half of 2012, but overall we continue to generate strong earnings and cash flows,” Rio
chairman Jan du Plessis said.
“Whilst we are mindful of short-term uncertainties we remain convinced of the strength of the long-term demand outlook,” he said.
Rio chief executive Tom Albanese said the company expected China’s economic growth rate to return to above 8 per cent by the end of 2012.
“We expect to see signs of improvements in Chinese economic activity by the end of the year, with growth picking up more strongly as [Chinese] Government stimulus measures announced in the second quarter begin to flow through to infrastructure investment,” he said.
“Around 500 of these investment projects are slated to start later this year and in 2013.”
Rio has a number of projects close to production which are expected to start generating revenues in the near term, including its Benga coal project in Mozambique, the Yarwun 2 alumina refinery which is in ramp up phase and the Mongolia-based Oyu Tolgoi copper and gold mine, which is due to start commercial production in 2013.
“Across the sector, miners are facing increasing costs and we are actively undertaking measures to tackle this challenge,” Mr Albanese said.
“From autonomous trucks and trains to faster underground tunnelling and advanced mineral recovery, all of these initiatives are aimed at reducing costs and improving
productivity,” he said.
Rio also announced that it would conclude mining operations at its Blair Athol coal mine in Central Queensland at the end of the year after nearly 30 years of production.
Clermont region general manager of operations Dawid Pretorius said the mine had been scaling back production since 2010 as its coal seams had been largely mined out.
Rio had planned for a 2012 mine closure since 2005, but rising coal prices in recent times meant the company was able to mine poorer quality seams as it looked to extend the mine life.
“Unfortunately, the recent significant drop in thermal coal prices, and other factors such as rising costs and the foreign exchange rate, mean this is no longer a feasible option,” Mr Pretorius said.
There are about 170 employees and contractors working at Blair Athol; only about 30 jobs will remain after production finishes.