Rio Tinto's Strong Results Demonstrate What Can Be Done When Switching From Building Mines To Operating Them

Riot Tinto’s stellar result, a 21% increase in underlying earnings to $5.1 Billion for the half year to the end of June, demonstrates what can be achieved when a mining company shifts from the investment phase of the resources boom to production.

The result is also on the back of a lot of cost cutting, including shedding 2,200 jobs, because you don’t need as many people to run a mine as you need to build one.

Rio slashed $3.2 billion out of operating costs compared with 2012 and sees another $1 billion of sustainable operating cash cost improvements by the end of 2015.

The rate of cost savings is expected to slow to around $250 million in the second half of 2014 but in 2015 the pace of cost savings is expected to increase again, to around $750 million.

Rio also expanded its iron ore output by about 20% and did so cheaper than anyone else at about $20.40 per tonne and in the 2014 first half got an average realised iron ore price of $99 per tonne.

And the result came after a general slippage in the prices of its commodities.

The effect of price movements on all major commodities in 2014 first half was to decrease underlying earnings by $1.392 billion compared with 2013 first half.

The average Platts price for Pilbara fines was 20% lower on average compared with 2013 first half while hard coking coal benchmark prices were 22% lower and thermal coal spot
prices averaged 16% down.

Average copper prices were down 9% and LME (London Metals Exchange) prices for gold and aluminium averaged 15% and 9% lower, respectively.

Aluminium achieved EBITDA of $1.1 billion, up 26% on 2013 first half despite the lower prices.

The former Gove refinery east of Darwin in north east Arnhem Land now operates as a bauxite export business after processing stopped in May. Export capacity is expected to ramp to 8 million tonnes a year by the end of 2015.

Rio Tinto chief executive Sam Walsh said: “We delivered what we said we would, exceeding our $3 billion operating cash cost reduction target six months ahead of schedule while producing record volumes and driving productivity improvements across all our businesses.”

Net debt by $6 billion compared with this time last year. Total borrowing are now $25.7 billion.

“We are confident Rio Tinto‚Äôs low cost, diversified portfolio will continue to generate strong and sustainable cash flows over the coming years,” Walsh said.

“This solid foundation for growth will result in materially increased cash returns to shareholders, underscoring our commitment to deliver greater value.”

And Rio will be sharing the joy with a 15% increase in fully franked interim dividends of 96 US cents per share.

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