Earnings hit Rio Tinto profits
MELBOURNE, Australia (Reuters) -- Rio Tinto Ltd/Plc, the world's second-largest diversified miner, said on Monday its second-half profit fell 10.5 percent as strong Chinese demand for iron ore was offset by weak coal earnings and a rising Australian dollar.
But the result was in line with forecasts and the company also affirmed market expectations for a rebound in 2004 as stronger Western economies and Chinese demand drives prices higher.
"As we enter 2004 we see stronger markets and improved prices for key products," Chairman Paul Skinner said in a statement.
Rio Tinto's larger rival, BHP Billiton Ltd/Plc, is expected to fare better because of its more diverse mix of products, including highly priced oil, when it reports on February 19.
Rio Tinto second-half profit fell to $741 million from $828 million a year earlier, excluding a gain from the sale of its 50 percent interest in Indonesia's Kaltim Prima Coal.
The result compared with an average analyst forecast, excluding one-off items, of $742 million within a range of $664 million to $833 million.
The company posted a 2003 year profit of $1.382 billion, compared with the year-earlier $1.53 billion profit before exceptional items.
The company said demand growth for its products from China grew rapidly in 2003 and many commodity prices rose over the year, but this was offset by currency movements.
Analysts forecast 2004 year profit to rise to around $2.0 billion due to higher commodity prices, driven by Chinese demand and expectations for stronger western economies.
"Obviously they are looking for reasonably strong commodity prices for 04," Ausbil Dexia resources analyst Adam Dixon said.
"Generally the company speaks with a good deal of caution and would only make such a comment if they were fairly certain of that kind of outcome."
Currency risks
But the rise in value of the Australian dollar against the U.S. currency is a key risk factor for Rio earnings.
The Australian dollar rallied 34 percent against its U.S. counterpart in 2003, increasing costs at Australian operations, which represent around half the company's operating assets.
China's strong demand for steel and higher prices drove an improved performance from the company's iron ore division in the second half of 2003 and copper earnings were boosted by climbing prices, which offset lower production.
But energy coal was hit by weaker prices, lower Australian and Indonesian coal production and higher costs caused by Australian port congestion.
Industrial minerals and aluminum were also weaker than a year earlier.
Rio Tinto also said it would look at further streamlining its diverse asset portfolio, after selling a stake in an Indonesian coal mine in the second half of 2003.
Australia-listed shares in Rio closed down 0.5 percent at A$35.45 on Monday. The shares have rallied about 21 percent since the end of June compared to an eight percent gain in the wider market.
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