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RIO’S RESULTS PUT BHP BID IN SHADE

The profits were driven by high commodity prices

Wednesday August 27,2008

By Andrew Johnson

RIO Tinto yesterday talked up its defence against rival BHP Billiton’s £70billion hostile bid by surprising the City with better-than-expected results and an upbeat view of China’s economy.

Chairman Paul Skinner said a 55 per cent jump in underlying earnings to $5.5billion (£3billion) for the six months to June, allied to Rio’s growth potential, showed that BHP’s offer was “still short of full value”.

The profits were driven by high commodity prices on the back of booming demand from China and last year’s £20billion acquisition of aluminium giant Alcan.

Rio shares fell 29p to 5150p, in line with the rest of the sector, on fears metal prices were sliding as the US and other Western economies slowed. But chief executive Tom Albanese said the threat of global slowdown was overblown.

Rio believes the world economy will grow at 4 per cent during the next year, driven by Chinese growth of 9 per cent.

“There’s a lot of doom and gloom about but our business continues to be strong,” said Albanese, adding commodity prices would be held at their current “historic high levels” as China invested heavily in bringing poorer provinces in line with richer areas such as Shanghai and Beijing.

“The Chinese are intending to build between 40,000 and 50,000 skyscrapers between now and 2025 in its poorer regions,” said Albanese. “Think about 50,000 skyscrapers —think about how much aluminium, steel and iron ore they need.”

Rio said provinces with populations larger than many European countries were yet to enjoy the “enormous growth” elsewhere in China.

Chief economist Vivek Tulpulé said that, in this light: “What goes on in the Western economies is not a very important determinant of what goes on in the metal markets.”

Prices are also being buoyed by continuing supply problems, including shortages of equipment and skilled staff.

The company is still confident of making $10billion in disposals from its Alcan acquisition and increased the savings from the purchase from $940million to $1.1billion.

The Chinese state-owned aluminium firm Chinalco owns 9 per cent of Rio.

Earlier this week it won approval to increase its stake to 11 per cent. Skinner said Chinalco remained a passive investor.