Global miner Rio Tinto posted a better-than-expected 55% jump in first-half profit, boosted by its 2007 takeover of Alcan and strong Chinese demand, and raised its dividend on Tuesday.
At a time when economists have been slicing their forecasts for commodity prices, Rio Tinto, like its hostile suitor BHP Billiton Ltd/Plc, was confident in its outlook.
"While the equity markets are currently focused on downside risks, we believe there are potential offsets on the upside based on continued strength in commodity demand, low inventory levels and a supply side which continues to face multiple constraints," Chairman Paul Skinner said in a statement.
"The group continues to perform strongly, and the outlook remains positive," he said.
Analysts were upbeat about the results.
"The headline profit number is certainly well ahead of expectations and the commentary associated with numbers appears very positive at this point in time," said analyst Adam Dixon at Ausbil Dexia in Australia.
"Rio's exposure to the bulk commodities sector has been extremely beneficial for the company and I think that the results will be very positively received by the market."
Rio shares in Sydney closed up 1.4% to A$124.06 before the results were released, compared to a 0.2% fall in the benchmark S&P/ASX 200 index.
Rio Tinto shares have fallen 9.7% so far this year while BHP's shares have been flat against the broader Australian market's 21% decline.
Rio shares are trading about 10% below the value of BHP's offer for the company.
BHP BID
The group is defending a $150 bln takeover bid from bigger rival BHP Billiton, which is awaiting clearance from Australia's competition watchdog, due in October, and from the European Commission, due in December, before launching its offer.
Skinner reiterated the group's view that BHP's offer of 3.4 shares for each Rio Tinto share was too low.
"The group's performance in the first half, together with our growth potential, supports the boards' view that Rio Tinto presents a very strong standalone value proposition for shareholders," Skinner said.
The Australian Competition and Consumer Commission last week signaled concerns that combining the two giants would lead to higher iron ore prices, which would hurt Australian steelmakers.
Rio said the global credit crunch and economic downturn had had only minor effects so far on commodity demand.
"Although we have seen some moderation in global growth rates from tightened availability of credit, the impact on our markets has been modest," Skinner said.
In China, which has been driving global commodities demand, imports of iron ore were running 20% above last year, the company said in a conference call.
Rio Tinto said it remained on track to sell $10 bln worth of assets by the end of this year, having already sold its stakes in the Cortez gold mine and Greens Creek silver, lead and zinc mine, and its Kintyre uranium project. Sales slated for this year could include Alcan packaging assets.
It raised the estimate of annual savings it would generate from its takeover of aluminum maker Alcan last year to $1.1 bln after tax from end-2009, from a previous $940 million.
Underlying earnings, excluding one-offs, rose to $5.474 bln in January-June from $3.529 bln a year earlier. Analysts on average had expected underlying earnings of $5.133 bln, according to Reuters Estimates.
It raised its interim dividend by 31% to 68 cents per share and committed to boost its full-year payout in 2008 and 2009 by at least 20 per cent in each year.
