Rio Tinto 2nd-Half Net Rises 11% on Iron Ore, Alcan

Rio Tinto 2nd-Half Net Rises 11% on Iron Ore, Alcan

Feb. 13 (Bloomberg) -- Rio Tinto Group, the target of a $138 billion hostile bid from BHP Billiton Ltd., said second- half profit rose 11 percent on record iron-ore production and its acquisition of Alcan Inc.

Net income in the six months ended Dec. 31 climbed to $4.06 billion, from $3.64 billion a year earlier. The earnings were calculated by subtracting first-half profit from full-year figures published today in an e-mailed statement. Profit beat the $3.99 billion median of eight analyst estimates compiled by Bloomberg.

`` It looks as if they have been able to contain costs fairly well,'' Ken West, who helps manage A$3 billion at Perennial Investment Partners Ltd., said today by telephone from Melbourne. ``Next year they will be very strong.''

The gain will support Chief Executive Officer Tom Albanese as he tries to keep Rio independent and bolster his argument that the company has better growth prospects than BHP over the next five years. Rising labor, fuel and shipping costs have squeezed mining companies' margins.

Rio's profit follows the unexpected 2.4 percent decline in earnings reported last week by BHP Billiton, the world's largest mining company.

``With supply side constraints across the mining industry unlikely to ease in the near future, commodity prices are expected to stay high by historic standards,'' Chairman Paul Skinner said in the statement.

Iron-Ore Record

Iron-ore production, which accounted for 27 percent of Rio's sales in 2006, increased to a record 145 million metric tons in 2007, the company reported Jan. 16. Iron-ore prices rose by 9.5 percent in last year's annual contracts with steelmakers.

Rio, the second-largest iron-ore exporter, last month completed a $1.4 billion expansion of Dampier Port in Western Australia, lifting the port's iron-ore capacity 90 percent. Rio's annual output may eventually triple to 600 million tons, it said in November, two weeks after BHP made its approach.

Rio completed the acquisition of Montreal-based Alcan in November, boosting its production of aluminum.

Full-year net income dropped 1.7 percent to $7.3 billion. Sales rose 32 percent to $33.5 billion. Rio increased its full- year dividend 31 percent to 84 cents a share.

Offer Rejected

Rio climbed 81 cents, or 0.6 percent, to A$128.61 at the close in Sydney trading, before the earnings were published. The London shares have more than doubled in the past year, compared with a 48 percent advance in Melbourne-based BHP's U.K. stock. Anglo American Plc, the second-largest mining company, has increased 21 percent.

Rio rejected an increased all-share offer from BHP on Feb. 6 as too low. BHP improved its bid to 3.4 shares for every one of Rio's four days after Beijing-based Aluminum Corp. of China and Alcoa Inc. of New York bought a 9 percent stake in Rio on Feb. 1 for $14 billion.

BHP wants to combine its Western Australian iron-ore operations with Rio's to challenge Rio de Janeiro-based Cia. Vale do Rio Doce as the world's biggest supplier of the raw material. The combination would be ``without comparison in the natural resources industry,'' BHP Chairman Don Argus told shareholders in a letter dated Feb. 7.

BLOOMBERG