Rio Tinto is to continue to pour cash into its expansion and growth projects because of demand from emerging markets even though the mining giant is cautious about the near-term economic outlook.
The global mining giant on Thursday reported a 59 per cent slump in calendar 2011 net profit to $US5.8 billion ($A5.39 billion) due mainly to a $US8.9 billion writedown of its aluminium business.
The impairment prompted chief executive Tom Albanese to forego his annual bonus because the ill-fated purchase of Alcan happened on his watch.
Rio Tinto spent $US38.1 billion to acquire Alcan in 2007 at the top of the market, in what is regarded as the miner’s biggest and most expensive mistake.
The company in October last year revealed plans to sell many of the assets, including all of its Australian aluminium smelters.
However, chief financial officer Guy Elliott – who also elected not to receive his bonus for 2011 in light of the impairment – told reporters on Thursday that the time was not right for the planned divestment as market conditions were tough.
The impairment charge overshadowed a record underlying earnings result, up 11 per cent at $US15.5 billion ($A14.42 billion).
That beat its previous underlying earnings record of $US14 billion ($A13.02 billion) in 2010 and also eclipsed analysts’ expectations, who were anticipating $US15.3 billion ($A14.23 billion).
Rio Tinto also increased its full year dividend by 34 per cent to $US1.45 per share, which it said reflected its confidence in the long-term outlook.
UBS analysts were expecting a full year dividend of $US1.30 per share.
Chairman Jan du Plessis said he thought it was “absolutely right” that Mr Albanese and Mr Elliott forego their 2011 bonuses because of the writedown.
“Whilst we have today reported excellent underlying earnings numbers, we also have to recognise that we have taken a significant impairment charge in relation to our aluminium business,” Mr du Plessis said in a statement.
London-based IG Markets sales trader Will Hedden said the dividend hike was somewhat expected by analysts, who had noted that the miner was in a strong cash position to reward shareholders.
“It was a good move,” Mr Hedden told AAP.
He said Rio Tinto opened about 1.5 per cent weaker on the London Stock Exchange and was the weakest stock among FTSE 100 companies.
“We wouldn’t be surprised to see a lot of people pick up Rio Tinto at a slightly weaker value because of that dividend hike,” he said.
Mr Hedden said the aluminium impairment had been well flagged by the miner but that the magnitude of the writedown was surprising.
“The numbers are decent overall but kind of disappointing in what they are projecting for market conditions,” he said.
Mr du Plessis said the miner expected that uncertainty in financial markets, particularly around the euro, together with elevated price volatility, would continue this year.
Like rival BHP Billiton, Rio Tinto is optimistic that a soft landing in China will help drive global growth.
The medium- to long-term outlook remained very positive for metals and minerals as strong demand growth from emerging markets continued, Mr du Plessis said.
This outlook, together with a strong balance sheet, gave the company the confidence to press ahead with its organic growth plans, which Mr Albanese said would be complemented by targeted mergers and acquisitions, and exploration activity.
Rio Tinto also on Thursday said it would increase total capital expenditure this year to $US16 billion, from $US12.3 billion last year.
