Sanlam Securities says Rio Tinto may need to diversify

13th Feb 2014 10:43

Sanlam Securities described Rio Tinto's annual results as solid on most fronts, but highlighted its shrinking aluminium business and its dependence on iron ore.Rio on Thursday increased underlying earnings in the year to December 31st by a tenth to $10.2bn and lifted its dividend by 15% to 192 cents per share compared with market hopes of $1.81. But Rio's Alcan aluminium operation sold several assets in 2013 and reduced capacity at a high-cost smelter in Quebec as aluminium prices fell 9% in 2013 against the previous year.Sanlam Securities said the failure of the aluminium business to recover was "a massive disappointment", highlighting the fact that it contributed only $1.9bn of pre-tax earnings before interest, depreciation and amortisation in 2013.It also pointed out that Rio remained dependent on iron ore for much of its business.The broker's analyst Charlie Long said: "Iron is where Rio and Sam Walsh are most comfortable, but it obviously relies on continued Chinese strength and government-led investment in infrastructure."Rio should remain one of the lowest cost producers of iron ore but a decline in the iron price would still negatively impact profits and share price performance."For those cautious on continued Chinese infrastructure spending, Rio is perhaps less diversified than it should be."Shares in Rio fell 23.5p to 3,486.5p at 10:55 in London.PW