Rio Tinto wary of cost inflation and economic crises

4th Aug 2011 08:53

Bearish comments about volatile economic conditions and rising prices in emerging economies took the gloss off a record set of first half earnings for mining giant Rio Tinto.Despite its struggles with market conditions, the company saw record first half underlying earnings of $7.8bn (£4.77bn), 35% above the same period last year. Capital expenditure rose significantly, however, to $5.1bn (£3.12bn) in the first half of 2011 (H1 2010: $1.8bn). Although the group's volumes were lower than 2010 on a like for like basis, it was able to take advantage of higher prices for products, What appears to have sent the shares lower, however, is the company's comments about high cost inflation in certain mining hotspots in a period of rapid investment across the industry. Coupled with the increasing strength of the Australian and Canadian dollars, the company has experienced pressure on its cost base.Chief Executive Tom Albense said: "Market expectations are for global growth of around 3.5% this year and we expect Chinese GDP to expand by 9.5%. We remain positive for the remainder of 2011 and into 2012, in particular given the context of the industry struggling to bring new production onstream. "However there are important risks to this outlook related to the pace of credit tightening in developing countries and the threat of financial crises arising from sovereign debt problems in Europe and the United States which could destabilise commodity markets."The group announced an interim dividend of 33.14p, up from 28.21p last year. The share price was -1.17 to 3,968.00p at 08.58. Manoj Ladwa, senior trader at ETX Capital, said the mining giant was having trouble reigning in its costs."Higher commodity prices and gains in the Australian and Canadian dollar left the miner trailing analyst estimates," he said."While the business is highly cash-generative, the company is erring on the side of caution as it avoids any large-scale acquisitions and opts to increase its share buy back programme," Ladwa added.NR