Rio bucks market costs to trump BHP in 2007 profit race

<p>Rio Tinto has outperformed market expectations and trumped recent results from arch rival and potential partner BHP Billiton, yesterday (Wednesday, February 13) reporting an $8.22bn annual profit.</p> <p>Rio Tinto, still fighting BHP’s hostile $165bn takeover bid, reported second-half iron ore production and shipment records from its mines in Western Australia. </p> <p>Iron ore sales revenue was $9.8bn, up 27% on last year, with net earnings of $2.9bn. </p> <p><em>Lloyd’s List</em> in London reports that high freight rates, demurrage costs and port congestion barely dented the profit result, with net earnings down 2% on 2006.</p> <p>This included a record fourth quarter production rise of 14% on the previous quarter.</p> <p>Eighteen per cent of iron ore sales went to the Chinese market, according to chief executive Tom Albanese.</p> <p>Iron ore production reached a record 144.7m tonnes, up 9% on 2006, including 109m tonnes from Rio Tinto’s 100%-owned Hamersley mine in the Pilbara region.</p> <p>Rio Tinto believed there would be a minimum price increase of 40% in contract sales of iron ore from April. </p> <p>Mr Albanese did not comment on ongoing price negotiations with Asian steel mills.</p> <p>Despite a strong performance from iron ore, Rio Tinto’s Australian thermal coal earnings of $270m were nearly half of the 2006 level. </p> <p>Demurrage costs, port and rail constraints and lower prices combined to hit the bottom line.</p> <p>Mr Albanese remained confident that China would continue to drive iron ore sales and that high freight rates made iron ore from Australia more competitive than rival ore from Brazil’s Vale.</p> <p>&#8220Market conditions, if anything, are stronger now than they were in the second half of 2007,&#8221 he said.</p> <p>Mr Albanese rejected the suggestion that China’s demand for commodities such as coal and iron ore would be dampened by the US sub-prime crisis or a global economic slowdown. </p> <p>Rio Tinto forecast China’s GDP to grow by 10% in 2008, with any US impact wiping only 1% from this estimate.</p> <p>Mr Albanese said China was taking a greater share of the consumption pie. </p> <p>"It is increasing because China is seeing more and more of its economic activity related to internals, internal consumption and internal investment, and less and less towards the US. </p> <p>&#8220We don’t mean to say that China is immune, but it’s clearly being buffered by that.&#8221 </p> <br />