Rio Tinto shares sink after first-half profit miss; adds $1 billion to share buyback

By Melanie Burton

MELBOURNE (Reuters) - Global miner Rio Tinto said on Wednesday its first half profit grew 12 percent, missing estimates and sending shares lower even though it earmarked an additional $1 billion to buy back London-listed stock.

Underlying earnings for the six months to June 30 grew to $4.42 billion as higher iron ore output overcame lower prices. That was below forecasts of $4.53 billion, according to estimates in an independent survey of 15 analysts, though above $3.94 billion in the same period a year ago.

"Versus consensus, it's a slight miss. It looks like aluminium was the problem at the divisional level," said Jason Teh, chief investment officer at Sydney based Vertium Asset Management, which owns Rio shares.

 

At 0829 GMT, shares in London were down 4.1 percent while the broader market slipped 0.8 percent.

Outgoing Chief Financial Officer Chris Lynch attributed the miss partly to the market not taking into account pricing in old alumina contracts the company has, which cost Rio "a couple of hundred million" dollars as it missed out on exposure to recent price gains in alumina - a raw material used to make aluminium - after the United States imposed sanctions on Rusal.

While U.S.-China trade tensions have overshadowed many businesses, Chief Executive Jean-Sebastien Jacques said the miner's operations had not been impacted the spar and rising tariffs so far.

"At this point in time, do we see any material impact on our business in relations to the rumours of trade wars and so forth? The answer is no. However, we will not become complacent," Jacques told reporters in a conference call.

Inflation, however, was a key concern, CFO Lynch said, given oil prices have climbed around 20 percent in the past year, with growing costs for aluminium raw materials such as coke, pitch, and caustic soda, and rising rates for contractors.

"There's a real threat of inflation, and the challenge for us...is to do our best to offset it," he said, noting efforts to cut costs and improve productivity across the business that has left the miner with less "fat" to cut than some others.

Rio declared a half-year dividend of $1.27 a share, equivalent to $2.2 billion, up 15 percent from $1.10 a share a year ago.

The increase in funds for share buybacks comes as asset sales worth $5 billion already announced in 2018 have left the world's No. 2 iron ore miner with a cash pile well in excess of the $5.5 billion outlined for planned capital expenditure this year.

In one deal, Rio has outlined the proposed terms of the sale of its 40 percent stake in Grasberg, the world's second biggest copper mine, to an Indonesian government-owned holding firm for $3.5 billion.

(Reporting by Melanie Burton in MELBOURNE; Additional reporting by Sonali Paul in MELBOURNE and Aaron Saldanha in BENGALURU; Editing by Richard Pullin and Kenneth Maxwell)