Rio Tinto vows to staunch red ink

Rio Tinto's new chief has vowed to slash costs, spend capital more carefully and focus on shareholder value after the world's No 3 miner reported a loss of US$3 billion.

Chief executive Sam Walsh was appointed last month when his predecessor was sacked for misjudged aluminium and coal acquisitions that led to US$14.4 billion in write-downs and left the miner reporting its first ever full-year loss.

"We can do better and I will improve this great company further," Walsh said, saying he would take a more aggressive approach to selling assets that no longer fitted with Rio's goals.

Rio yesterday reported a 47 per cent plunge in half-year underlying profit, its worst interim result since 2009, due to sharp falls in commodity prices, although the result was slightly better than expected. Underlying profit fell to US$4.149 billion for July-December 2012 from US$7.768 billion a year earlier, based on Reuters calculations.

Analysts on average had forecast a half-year underlying profit of US$3.93 billion.

Investors, speaking before Walsh's first outing as chief executive, said the biggest challenges he faced were to decide what to do with the group's Pacific Aluminium and diamonds businesses, both up for sale for over a year, and also how to drive growth outside its powerhouse iron ore business, which generates nearly all of Rio's profits.

Walsh, 63, led the iron ore unit for nine years, slashing costs, securing stakes in high-quality deposits, and automating operations with driverless trucks and trains run from a hi-tech centre 1,500 kilometres away from the mines. Cost-cutting is high on his agenda, with Walsh indicating that the company would rip out more than US$5 billion in costs by the end of 2014. "Throughout 2013 and 2014 we will seek to enhance margins at our existing businesses by unlocking substantial productivity improvements, aggressively reducing costs and better managing our sustaining capital," he said.

Under pressure from investors concerned that big miners wasted cash during the boom times and should have rewarded shareholders more generously, Rio raised its final dividend to 94.5 US cents a share, well above forecasts around 87.5 US cents.

Rio Tinto, like its bigger rival BHP Billiton, has a "progressive" dividend policy that calls for it to steadily increase dividends in good times and bad, a policy that analysts say should be scrapped.

The iron ore business, which Walsh led until January, made up nearly all of Rio Tinto's second-half underlying earnings, with higher volumes partly offsetting a drop in prices, cushioning losses in aluminium operations.

For the full year, Rio reported a US$2.99 billion loss, reflecting write-downs on its Alcan takeover in 2007 and a coal acquisition in Mozambique, where transport challenges have slowed development and coal output estimates have been cut.

Rio's shares touched a one-year high in Australia of A$72.30 (HK$580) ahead of the result. The stock has climbed nearly 30 per cent over the past six months, outperforming the broader market.