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Rio Tinto First-Half Profit Jumps 30% to Record

Rio Tinto Group, the second-largest mining company, said first-half profit rose 30 percent to a record on higher prices for iron ore, copper and aluminum. The company increased its share buyback by $2 billion. Net income climbed to $7.6 billion in the six months ended June 30, from $5.8 billion a year earlier, the London-based company said today in a statement. Underlying profit rose 35 percent to $7.8 billion. That trailed the $8.3 billion mean estimate of nine analysts compiled by Bloomberg.

Chief Executive Officer Tom Albanese has presided over an almost fivefold increase in profit since the first half of 2009 as raw-material prices advanced. That’s allowed Rio to slash debt and boost spending on expansions and cash returns to holders. Iron ore provided almost two-thirds of Rio’s 2010 earnings before interest, tax, depreciation and amortization.

“The outlook for iron ore remains robust with strong demand from China and supply shortages,” Neil Goodwill and Roscoe Widdup, Melbourne-based analysts for Goldman Sachs & Partners Australia Group Holdings Pty, said in an Aug. 1 report. “Rio has some of the world’s cheapest iron ore production on a delivered basis into China and we would expect it to continue to reap significant cash flows from the current high prices.”

The company increased its share buyback, announced in February, to $7 billion and said it would be completed by the end of the first quarter of 2012.

Dividend Rises

Rio fell 1.3 percent to A$76.58 at the close of Sydney trading on the Australian stock exchange today. It dropped 3.9 percent in London trading yesterday.

Rio declared an interim dividend of 54 cents, compared with 45 cents a year earlier. The company’s own average estimate of underlying profit from 18 analysts was for $8.03 billion.

The price of iron ore, the key steelmaking ingredient, may average $170 a metric ton in 2011, up from $122 a ton last year, according to Morgan Stanley. The price of copper on the London Metal Exchange averaged $9,403 a metric ton during the half, up from $7,161 a ton a year earlier. Aluminum averaged $2,573 a ton in the period, compared with $2,162.

“Although volumes were lower than 2010 first half, we were able to take advantage of higher prices for our products,” Albanese said in the statement. “Looking further ahead, our view remains that our markets will continue to experience higher than average growth, but they will be characterized by elevated volatility and scope for discontinuities.”

‘Changed Company’

In February, Rio announced a 40 percent increase in its dividend payment and the share buyback as 2010 net income tripled to $14.3 billion. Rio didn’t pay an interim dividend in 2009 and instead pursued a $15.2 billion rights offer as it grappled with almost $40 billion in debt after taking over Alcan Inc. in 2007.

“Rio Tinto is a much-changed company from two years ago,” RBC Capital Markets analyst Des Kilalea wrote in a report yesterday. “Not only is the balance sheet in a far better condition, but management is able, for the first time in two years, to focus on the business rather than worry about hostile takeovers and a perilous financial position.”

Rio has worked to repair its balance sheet after debt ballooned 19-fold with the purchase of Alcan. It’s sold more than 20 assets since 2008, raising more than $11 billion, Rio said this week.

The company’s two biggest development projects are the copper and gold Oyu Tolgoi mine in Mongolia, where commercial production is expected in the first half of 2013, and the Simandou iron ore project in Guinea which Rio has said will cost more than $10 billion to build.

Rio is the world’s second-largest mining company by sales, trailing BHP Billiton Ltd. (BHP) Brazil’s Vale SA is the third- largest.

Source: Bloomberg