Rio Tinto Limited (RIO) is a diversified mining company holding a portfolio of world class interests in aluminium, copper, diamonds, gold, coal, iron ore and industrial minerals. RIO has operations spanning 6 continents and is the third largest mining company in the world.

Rio takes a common-sense, long-term approach to mining. Its strategy is to focus on large-scale, long-life, and low-cost mining operations, and to invest in maintaining competitive positions. The company constantly seeks new sources of advantage to institutionalize in ways competitors cannot easily replicate. Prime attention is paid to project quality andnot the commodity or geographical location.Adjusted 1H07 profit was essentially in line with 1H06 at US$3,529m, but 12% below our US$4,000m forecast. The headline figure fell 14% to US$3,253m but included a US$314m impairment reflecting the impact of cost pressures at Argyle diamonds in WA, partially offset by US$38m in FX and derivative gains. Argyle's cost has blown out 60% to around US$1.5bn. The impairment seems a conservative treatment perhaps boosting cash flow at the expense of P&L. We didn't see assets written up!Headline 1H06 was inflated by US$211m recognition of deferred tax assets. Adjusted 1H07 EPS rose 3% to 272c aided by a 47m share reduction in weighted average equity thanks to buy-backs and on market purchases. The interim fully franked dividend is US52c, half the previous full year payout. In A$ terms, the dividend rose 16% to 60.7c.The poorer than expected result was due to higher operating costs and depreciation, and came in spite of strong revenue growth. Margins fell. Operations were pushed to maximise production to capitalise on high prices. The Iron Ore and Energy divisions in particular disappointed. WA iron ore operations experienced higher contractor and transportation costs following cyclones..

30/12/07

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Materials

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Materials