A period of aggressive cost cutting and improved commodity prices has seen Rio Tinto reduce its debt by US$20 billion and placed the company in a better than expected financial position.
Rio yesterday announced an unexpectedly strong jump of 33% in full-year net profits, with a total of US$4.87 billion for 2009, up from US$3.68 billion the previous year.
“During 2009 we took decisive actions to recapitalise the balance sheet,” chairman Jan du Plessis said.
The company’s overall underlying net profit was US$6.3 billion, up on the US$6.1 billion predicted by most analysts but still a 39% drop from 2008.
Much of the company’s relatively strong financial position can be attributed to multiple asset sales from its US$38 billion purchase of Alcan in 2007, as well as a rights issue and the continuing recovery of global commodity prices.
“We have witnessed a substantial recovery in the pricing of most of our key commodities over the past twelve months, driven largely by government measures in response to the global financial crisis,” Jan du Plessis said
“Our renewed financial strength gives us the opportunity to focus on growth through disciplined investment in capital growth projects.”
A particularly crucial factor in Rio’s economic position was the recovery of its aluminium division, which returned to profitability in the second half of 2009 with an US$800 million turnaround in its underlying earnings.
The company’s ill timed top-of-the-market purchase of Canadian aluminium producer Alcan ultimately led to a potentially crippling debt of close to US$40 billion.
du Plessis said he remains positive on the future of global commodity markets.
“We believe that the factors that drove price recovery in 2009 will continue through 2010,” he said.
“We expect that China will grow at over 9% and the emergence of the OECD from recession will provide further support.”