By Rhiannon Hoyle
SYDNEY-- Rio Tinto PLC said first-half net profit plunged from a
year earlier, as the Anglo-Australian miner grappled with a sharp
slump in prices for commodities such as iron ore, coal and
copper.
Rio Tinto, the world's second-largest producer of iron ore
behind Brazil's Vale SA, said it was targeting cost cuts of $1
billion this year compared with an earlier target of $750 million.
It also said it would spend less than it had expected on projects,
paring its capital-expenditure budget for this year to around $5.5
billion from an earlier forecast of as much as $7 billion.
The resources giant Thursday reported a net profit of $806
million for the six months through June, down from $4.4 billion in
the same period a year earlier. That was weighed by noncash
exchange-rate and derivative losses of $1.3 billion and impairment
charges of $400 million, mainly relating to its stake in Energy
Resources of Australia, it said.
Underlying earnings, stripping out one-off charges, were down
43% at $2.92 billion, it said, above the $2.42 billion median of
seven analysts' forecasts compiled by The Wall Street Journal.
An interim dividend of $1.075 a share was declared, up 12% from
a year earlier, and in line with analysts' expectations.
Chief Executive Sam Walsh said the miner maintained its
commitment to capital returns for investors despite challenging
commodity markets.
Earlier this year, the miner said it would repurchase $2 billion
of its shares in 2015--a clear shift toward higher investor returns
for a company that had spent years investing heavily in new mines
to meet a seemingly unstoppable rise in demand from China. The
share buybacks also came after the company received an approach
from Switzerland-based Glencore PLC in July 2014 about a potential
tie-up.
While some analysts are skeptical Rio Tinto can afford to buy
back more shares given weak prices, others say cost-cutting
measures could open the door to another program of capital
management as early as February.
Rio Tinto has in recent years made most of its earnings from
mining iron ore in Australia's remote Pilbara region and
Canada.
On Thursday, the company said underlying earnings from those
operations dropped 55% year-over-year to $2.10 billion, underpinned
by a near-40% fall in prices of the steelmaking material at the end
of June compared with the same point in 2014.
Earnings declined despite a sharp rise in the volume of ore the
miner ships, after an expansion of its Australian mining
operations. The miner aims to export roughly 360 million tons
annually from its Pilbara mines within the next few years, compared
with 280.6 million tons in 2014.
Iron-ore prices have fallen as rising shipments from Rio Tinto
and its rivals, such as BHP Billiton Ltd. and Fortescue Metals
Group Ltd., overwhelmed demand. The spot value of iron ore slumped
to as low as $44.10 a ton last month, down from a record above $190
a ton in 2011. China's appetite for iron ore has also slowed due to
a cooling economy and property market downturn.
A slump in prices for other commodities Rio Tinto produces was
also a drag on its earnings.
Rio Tinto said earnings from its copper-and-coal unit plunged to
$393 million, compared with a profit of $658 million in the same
period a year earlier. Coal prices have been languishing at
multiyear lows, also due to slowing demand and oversupply from new
and expanded mines. Copper prices have fallen sharply in recent
months as well.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires