Rio Tinto announces $6.3 billion profits and another Alcan offer

Rio Tinto yesterday announced profits of A$6.3 billion for the first half of 2010, as well as revealing it had received a binding offer for a majority stake in one of its remaining Alcan assets.

Rio Tinto yesterday announced profits of A$6.3 billion for the first half of 2010, as well as revealing it had received a binding offer for a majority stake in one of its remaining Alcan assets.

The company’s underlying profits after tax for the first half of the year were US$5.77 billion, up 125% on the US$2.57 billion reported this time last year. 

Similarly, Rio’s net earnings increased 260% from US$1.62 billion last year to US$ 5.85 billion in 2010. 

The cash flow from all operations also increased 78% from US$5.35 billion to US$9.86 billion. 

According to the company’s chief executive Tom Albanese, the earnings were achieved thanks to recoveries in its key markets. 

“We have reaped the benefits of the cost reduction efforts implemented in 2009 and have been pushing our production hard to benefit from a strong pricing environment, leading to record first half cash flows from operations of US$9.9 billion,” he said. 

“Together with divestment proceeds, this enabled us to reduce our net debt to US$12 billion at 30 June 2010.”

Company chairman Jan du Plessis said the results reflected higher commodity prices and a strong operational performance. 

“I was pleased to see this reflected in a substantial further reduction in our net debt to US$12 billion, compared with US$39 billion at 30 June 2009,” he said. 

“Our business is robust with a strong balance sheet which is able to withstand volatility or further shocks from the global economy.

“Developing our relationship with China is a key priority for Rio Tinto and I was very pleased to sign the agreement with Chalco last week for the Simandou joint venture.

“We are firmly focused on high quality growth with many tier one options ahead, so we look to the future with confidence.”

The company’s iron ore operations were the most profitable and contributed nearly three quarters of the total earnings for the half. 

Iron earnings more than doubled from US$1.93 billion in 2009 to US$4.12 this year. 

Copper also doubled from US$529 million to US$1.06 billion. 

Thanks to a “structural shift away” from annual to quarterly benchmark pricing, the company was able to secure higher iron ore prices from about half of its Asian customers. 

Overall, the company’s total revenue rose to US$25.21 billion from US$18.85 billion in 2009.

Meanwhile, Rio also announced it had a received a binding offer from funds affiliated with Apollo Global Management and the Fonds Stratégique d’Investissement to buy a 61% stake in Alcan Engineered Products (AEP), excluding the Cable Division.

Under the terms of the transaction, Apollo would become the majority and managing shareholder with a 51% stake and the FSI would hold 10%. 

Rio would retain the remainder.

“This potential sale of a majority stake is in line with our strategy of divesting non-core assets of Rio Tinto Alcan,” Rio chief financial officer Guy Elliott said.

“When this transaction is completed, we will have exited all downstream businesses, except Alcan Cable. 

“We look forward to participating in the upside potential of AEP, both as a minority shareholder and key supplier to the business.”

The company has been divesting the Alcan divisions since the 2008 in order to pay off the previously mentioned US$39 billion debt. 

Since then, the company has completed US$10.3 billion worth of divestments, with US$3.6 billion coming in 2010.

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