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Rio Tinto Plc Abandons Plan To Sell Pacific Aluminium

Shares in Rio Tinto (LSE: RIO) (NYSE: RIO.US) lifted over 2% in early trade this morning, despite half-year results from the mining giant that saw underlying earnings drop down to $4.2bn.

The 18% fall from $5.15bn during the same period last year was attributed to “lower average market prices and a higher effective tax rate”, though management were keen to point out that it could have been worse save for “record iron ore shipments and cost savings momentum” within the company. Indeed, the decline came within analysts’ expectations.

One big piece of news from today’s update was that Rio has aborted plans to sell its loss-making Pacific Aluminium venture, as it feels it would not get a fair price in the current environment. The business will be reintegrated into Rio Tinto Alcan during the second half of 2013, which saw underlying earnings of $123 million, $99 million higher than H1 2012.

The aforementioned “cost savings momentum” led to $1.5bn worth of improvements in the period, including $977 million of operating cost improvements and $483 million from lower exploration and evaluation spend in the first half of 2013.

Rio’s operations retain a good performance, with record iron ore production and stronger copper volumes in the first half, as well as the recovery at Bingham Canyon “advancing faster than previously expected” following the pit wall slide in April, which caused a $0.3bn write-off of waste stripping costs and damaged equipment at Kennecott Utah Copper.

Chief executive Sam Walsh commented:

“Capital expenditure has been reduced, approved growth projects are on track and operations are performing well. We have set ourselves firmly on the path toward becoming a leaner, more tightly-run business.

“The medium-term economic outlook remains volatile with a broader range of outcomes now possible. Chinese economic growth has decelerated so far this year and is unlikely to recover significantly in the second half, but we do not expect a hard landing.

“I believe that we are well on track to build a stronger Rio Tinto. We are making good progress against our clear commitments and remain focused on the pursuit of greater value for our shareholders.”

This value was reflected in a 15% increase in the interim dividend to 83.5 cents per shares, despite the reduction in EPS. Consensus forecasts give Rio a healthy yield of 3.9%, above the FTSE 100’s average.  Of course, whether Rio’s share-price valuation and today’s operations statement combine to make the miner’s stock a ‘buy’ remains something only you can decide.

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> Sam does not own shares in Rio Tinto.