Rio Tinto is about to announce a painful drop in earnings

Making steel in China. China Photos/Getty Images

Rio Tinto will later today announce a sharp fall in profits when it posts its first half results showing a slump in revenue from iron ore, it biggest revenue generator.

The big miner is also forecast to maintain its dividend payout while at the same time reducing debt to better deal with falling commodity prices.

The consensus of analysts is for profit of $US2.4 billion, about half the $US5.19 billion for the same period a year ago.

But the result is expected to be between 10% and 20% better than that. Deutsche Bank forecasts $US2.9 billion and UBS $US2.735 billion.

The big miner has been cutting costs, increasing ore output, pulling back on capital spending and cutting debt in response to falling commodity prices. A strengthening US dollar is helping the process.

At the end of 2014, Rio had pulled out $US4 billion in pre tax costs. Another $US750 million is forecast for 2015.

Miners are operating in an environment where the prices for what they produce keep weakening. Rio CEO Sam Walsh says it takes financial and operating discipline to offset much of that impact.

The market will be looking for further cuts in capital spending. Deutsche Bank sees guidance falling to $US6 billion from $US7 billion.

UBS forecasts revenue from iron ore, the biggest part of earnings, to be down about 39% to $US2.093 billion compared to the same half in 2014.

Rio’s iron ore production for the first half was 11% higher at 154.3 million tonnes.

The company will also give an update on the progress of its $US2 billion share buyback and its level of debt which, at the end of 2014, was running about $US12.5 billion, down about 30% on the year before.

The interim dividend is expected to be about US108 cents a share in line with the policy of the half year payout being equal to half of the previous full year which was $US2.15.

“The declaration of the dividend will be an important confirmation of the returns policy and should eliminate some market concerns that the dividend yield is not ‘real” and could be cut’,” Deutsche Bank says in a note to clients.

Underlying earnings of $9.3 billion in the full 2014 year were 9% lower than 2013 despite a $4.1 billion impact from lower commodity prices.

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