February 9, 2011 / 1:02 PM / in 7 years

Rio Tinto H2 profit expected to soar

* Investors looking for details on labour issues and costs

* Rio to report results on Thursday

By Sonali Paul

MELBOURNE, Feb 10 (Reuters) - Global miner Rio Tinto (RIO.L) (RIO.AX) is expected to double its profit for the December half on booming iron ore and copper sales, with investors eager to know what it may do with its fast-rising cash flows.

Investors will be looking for its results to outstrip analysts’ forecasts, like smaller rivals Xstrata XTA.L and Teck Resources TCKb.TO did earlier this week. [ID:nLDE7170JH] [ID:nN08274685]

“It’ll be a good result. All the miners are producing good results,” said Don Williams, chief investment officer at Platypus Asset Management.

The big miners are so flush with cash that even their multi-billion dollar expansion projects and smaller acquisitions, such as Rio Tinto’s (RIO.L) $3.9 billion bid for Mozambique coal miner Riversdale RIV.AX, will not soak it all up.

Xstrata set the pace, paying shareholders a final dividend of 20 cents a share, nearly double the market’s forecast.

Rio Tinto is pouring some of its cash into expanding iron ore and aluminium capacity, having flagged last August that it would spend $9 billion on expansions in 2011, up from $6 billion in 2010.

Beyond that, Rio’s shareholders would like to get their hands on some of its spare cash, rather than see it make any overpriced acquisitions like Alcan in 2007, which buried Rio under a $39 billion mountain of debt.

“Alcan was an expensive acquisition ... hence the nervousness,” said Renzo Casarotto, senior portfolio manager of Colonial First State’s Global Resources Fund, which owns Rio Tinto shares.

Investors will also be pressing Rio Tinto for comments on the key headwinds facing the miners — escalating labour, materials and energy costs hitting operations and expansion projects.

There is also uncertainty over the final shape of a mining tax on coal and iron ore profits in Australia, which Rio Tinto, BHP and Xstrata are discussing with the government.

Those factors, along with potential takeover opportunities such as Ivanhoe Mines (IVN.TO), could lead Rio Tinto to disappoint investors holding out for a big increases in dividends or a share buyback.

Rio Tinto is expected to report net profit of $8.29 billion for the December half, up from $3.73 billion a year earlier. The consensus for full year 2010 is $14.06 billion.

Morgan Stanley analyst Craig Campbell said Rio Tinto could easily beat forecasts, as he sees them having boosted sales of iron ore at soaring spot prices, away from quarterly contracts, in late 2010.

The company is expected to increase its final dividend to at least 48 cents, but could easily surprise with a bigger payout, like Xstrata.

Analysts say it is likely to wait until its result in August before considering a share buyback. (Editing by Anshuman Daga)

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