Rio Tinto reports a 78 percent profit increase despite plunge in iron ore and coal prices

February 13, 2015

Despite the slump in iron and coal of late, Rio Tinto reported a profit increase of 78 percent thanks to aggressive cost cutting and a big ramp up in supply.

The company posted a 78 per cent increase in full year net profit for 2014 to $US6.5 billion dollars, up from $US3.6 billion dollars in 2013.

Rio Tinto CEO, Sam Walsh, said the miner achieved the result by reducing costs.

“Our continued financial and operating discipline enabled us to offset much of the impact of lower commodity prices in 2014,” he said. “By increasing volumes and reducing costs, we achieved underlying earnings of $US9.3 billion.”

Iron ore prices fell by half in 2014 as the world's biggest iron ore producers, Rio, BHP Billiton and Brazil's Vale, dramatically oversupplied the market as part of a strategy to drive out higher cost miners, Australia’s ABCnews reported.

As part of its promise to shareholders to increase returns, Rio Tinto, raised the final dividend payout by 12 percent to $US2.15 per share.
It also announced a $US2 billion share buyback.

Annual earnings at Rio’s iron ore division fell by 18 per cent to $US14.2 billion, earnings at the aluminium division rose by more than half to $US2.9 billion, copper earnings also rose but earnings from the Energy division, which includes coal, fell by 72 per cent to $US251 million.
The miner cut net debt to $US12.5 billion and slashed capital spending to just over $US8 billion.

Walsh said Rio had sacked 4,000 people since 2013, bringing their global workforce to 62,000.

He said that more job cuts were expected, including at the company’s West Australian iron ore mines, which make up the lion’s share of Rio's earnings.

“We’re actually reducing our costs by a further $150 million,” he told journalists on a conference call.

“This will be through a whole range of actions, focusing on improving efficiency, focusing on improving effectiveness. In the Pilbara we will be increasing our production.

“There will be, of course, some offset there as we move forward during this year.”

The miner said that 2015 was likely to be a challenging year.



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