Rio Tinto’s 33% rise in 2009 earnings was well anticipated by the market.
The shares rose 2.6%, or a solid $1.78 yesterday to end at $69.92 ahead of the result’s release after trading finished at 4 pm.
The result was released just after 5 pm in Sydney, which is 6 am in London and 7 am in Europe.
The company’s net profit was $US4.872 billion ($A5.57 billion), up from its calendar 2008 figure of $US3.67 billion ($A4.2 billion).
Dividend was 45 USc a share, down from 111 paid in the record year of 2008, but certainly more than anyone had though six to nine months ago when Rio was struggling and trying to raise enough cash to keep its head above water (and out of the hands of Chinalco, the Chinese aluminium group).
Rio didn’t pay an interim for the June 30 half, so the 45 USc could be looked at 90 USc over a year if maintained in the first half of next year.
Rio earned $US2.6 billion in the June 30 half.
In fact the profit and the confidence in Rio matches that at BHP, Xstrata and Vale, the big Brazilian iron ore group.
Rio has gone from being the weakest of the big four of global resources, to returning to the fold, courtesy of rejecting Chinalco, going with the huge right issue of 2009 and asset sales.
The rebound in iron ore, thanks to China’s recovery, has also been a big, big factor in saving Rio from its Alcan adventure.
Rio Tinto kept faith with the market believers with the rebound in earnings, helped by record iron ore sales and a significant increase in copper and gold production.
The surge in iron ore and the higher sales of gold and copper were detailed in last month’s 2009 and 4th quarter production report.
Underlying earnings came in at $US6.298 billion ($A7.2 billion), way down on the previous year’s $US10.303 billion ($A11.78 billion).
But it was better than analysts forecasts of $US6 billion ($A6.86 billion).
The company said the result "reflected the scale and strength of operating performance, notably in the second half."
- Underlying EBITDA of $US14.3 billion and underlying earnings of $US6.3 billion.
- Controllable operating cost savings of $US2.6 billion in 2009, exceeding target one year in advance.
- Cash flow from operations of $US13.8 billion.
- Continued investment in 2009 with net capital expenditure of $US5.4 billion.
- Recapitalisation of the balance sheet; net debt reduced from $US38.7 billion to $US18.9 billion at 31 December 2009; gearing improved to 29 per cent.
- Return to profitability for the Aluminium product group in the second half following a $US0.8 billion half on half improvement in its underlying earnings.
- $US7.2 billion of divestments announced during 2009 of which $US5.7 billion has since completed. Since February 2008, Rio Tinto has announced asset sales of $US10.3 billion.
- Strong volume gains, primarily from record iron ore sales and a significant increase in copper and gold production, boosted earnings by $US652 million year on year.
- Final dividend of 45 US cents per share or $882 million.
- Further progress towards the formation of the Western Australia iron ore production joint venture with BHP Billiton.
In a commentary, Rio chairman Jan du Plessis said: “Achieving underlying earnings of $US6.3 billion is a commendable result for the Group, especially during a year of rapidly changing macro economic conditions.
"During 2009 we took decisive actions to recapitalise the balance sheet and to reduce operating costs.
"Significant progress in our divestment program and strong operating cash flows, together with the proceeds from the rights issues, have enabled us to cut net debt by more than half – a $20 billion reduction in 2009.
"Our renewed financial strength gives us the opportunity to focus on growth through disciplined investment in capital growth projects.
“We have made good progress towards the creation of the Western Australian iron ore production joint venture with BHP Billiton.
"We expect it to deliver over $10 billion of synergies through reduced costs and increased production.
"Following the signing of binding agreements in December, we are now moving forward with the joint regulatory filings.
“The Boards have announced a final dividend of 45 cents per share. This reflects the Group’s strong operating performance, excellent progress with divestments and our positive outlook.
“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.
"The bottoming out of the global economy and cutbacks in production have also influenced commodity prices.
"Looking forward, we believe that the factors that drove price recovery in 2009 will continue through 2010.
"We expect that China will grow at over nine per cent and the emergence of the OECD from recession will provide further support.
"However, we are mindful that the wind down of stimulus packages across the globe and speculative asset bubbles could produce volatility.
"Rio Tinto, with its suite of low cost, tier one assets, recapitalised balance sheet and options for growth is well positioned to benefit from a sustained recovery in the world economy.”
