Rio CEO Predicts Growth, Says BHP Bid too Low

CNBC.com and wires

Global miner Rio Tinto reported a 9 percent rise in second-half operating profit Wednesday, boosted by record production of major commodities, and expects strong demand to continue as China's economy develops, its CEO told CNBC.

The result nudged operating earnings for the full year 1 percent higher, the company said.

"There's been a great year. We had new record earnings…  record cash flow and record EBITDA," Tom Albanese, CEO of Rio Tinto, told "Squawk Box Europe."

China's economic growth is likely to continue, requiring more commodities, Albanese said."In China you see nothing but continued investment … driving mineral consumption," he said.

Rio Tinto is the target of an unsolicited takeover offer by rival BHP Billiton, which is offering 3.4 of its shares for each Rio Tinto share.

But Rio will continue to defend itself because the bid is too low, Albanese said.

CEO: Rio Value Much Higher than Offer

"This has all been about the value of Rio Tinto. The value of Rio Tinto, as the results show, is much stronger than what's been presented, a long way away," he said.

A merger between the two giants does not bide well for the steel industry, where there are fears that concentration would push iron ore prices higher.

"The merger threatens the sustainability of the steel industry … it could mean significant cost increases for us in the future," Aditya Mittal, president and CFO of Arcelor Mittal, told "Power Lunch Europe."

But analysts said the two mining companies could cut costs. "I think it makes sense for the companies to merge," Leo Larking, mining analyst Standard & Poor's, told "European Closing Bell."

Prices Stay High

Industry-wide constraints among miners in digging and shipping mineral commodities was keeping price for its key products such as copper, iron ore and coal high, Rio Tinto said in a statement.

"With supply side constraints across the mining industry unlikely to ease in the near future, commodity prices are expected to stay high by historical standards in 2008 and well beyond, Rio Tinto Chairman Paul Skinner said in a statement.

The demand outlook for its products was positive despite unsettled financial markets, Skinner also said.

Underlying profit for the half year was $3.91 billion versus $3.59 billion a year ago. Full year underlying earnings totalled $7.44 billion versus $7.34 billion a year earlier.

Full year net profit fell 2 percent to $7.31 billion.

Unfavourable movements in currency exchange rates reduced underlying earnings by $403 million, while freight and demurrage costs cut the figure by a further $163 million and energy costs reduced it by another $82 million.

BHP on Feb. 6 reported underlying earnings were up 5.4 percent to $9.6 billion.

-- Reuters contributed to this report

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