Rio Tinto Posts Record Earnings for First Half of 2008, Fending off BHP Billiton Takeover

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Researched by Industrial Info Resources (Sugar Land, Texas)--International miner Rio Tinto (NYSE:RTP) (London) posted record earnings for the first half of 2008. "Overall, the first half of 2008 demonstrated the continuing strong upward momentum of the group's performance and earnings," Chairman Paul Skinner said in a conference on August 26 discussing the company's earnings. Rio Tinto's net earnings for the period were $6.91 billion, up a significant 113% from $3.25 billion posted for the same period last year.

For the past several months, BHP Billiton (NYSE:BHP) (Melbourne, Australia) has attempted a hostile takeover of the company. In November of last year, Rio Tinto declined a pre-conditional offer of three BHP shares for every one Rio Tinto share. Rio Tinto's board of directors felt that the offer significantly undervalued the company and rejected the offer, which it did again in February of this year when BHP made an offer of 3.4 shares for every share of Rio Tinto. Skinner said: "The position of the Rio Tinto board remains unchanged. The offer has been unanimously rejected on the basis that it is not in the best interest of our shareholders, because it fails to recognize fully the underlying value of Rio Tinto's quality aspects and prospects. We've got a clear strategy, a well-balanced and high-quality asset portfolio, excellent growth opportunities and a management with proven capability to deliver value to shareholders."

The confidence displayed by Skinner is not unwarranted. Earnings from all but one of Rio Tinto's business units have increased significantly this year. Net earnings from the company's iron ore section increased from $1.1billion in 2007 to $2.88 billion in 2008. CEO Tom Albanese said, "Overall, iron ore is a core component of Rio Tinto's value proposition." Net earnings in the company's aluminum sector increased 145% from $406 million to $995 million. Earnings from copper and diamonds operations dropped from $1.9 billion in 2007 to $1.69 billion in 2008, while the energy and minerals sector rose to $679 million from $370 million in 2007, an increase of 84%. "The outlook for coal demand in Asia remains excellent, Albanese said, in regard to the energy sector. "Prices have gone up fivefold in five years as China has trended toward becoming a net importer of coal," he said. Albanese added that Rio Tinto was on schedule to double its coal-producing capacity by 2015. Chief Financial Officer Guy Elliot pointed to the price increase in commodities as having led to the company's record earnings, noting that losses incurred from international exchange rates had reduced earnings somewhat.

Industrial Info's Project Database is currently tracking 27 active projects worldwide involving Rio Tinto, nine of which are occurring in North America. Through its Rio Tinto Alcan division, the company is performing $7.69 billion of expansions, additions and upgrades to four aluminum production plants in Canada. Construction on the largest of these projects, at the Kitimat Aluminum Smelter (Kitimat, British Columbia), is expected to kick off this month. The $2.3 billion modernization project is scheduled for completion by the end of 2010.

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