Rio Tinto Results: What to Watch

Rio Tinto is set to report first-half results Thursday and market watchers are predicting a sharp drop in profit for the Anglo-Australian miner.

Rio Tinto
Rio Tinto

On average, analysts surveyed by CNBC expect profit to fall by more than 50 percent to about $2.6 billion, with estimates ranging from $2.2 billion to $2.7 billion.

Outlook is likely to be cautious like rival BHP Billiton

, with no certainty until 2010, Warren Edney, senior analyst at RBS, said.

“In cutting back (capital expenditure) in January 2009, Rio mothballed most of its growth projects,” Nick Hatch, head of metals and mining equity research at ING said. “The balance sheet is now repaired and commodity prices have started to rise again.”

“Management may take the view to re-initiate these growth projects,” Hatch added. “We believe it is likely premature for this to happen, with announcements of restarts more likely later this year.”

In addition, investors will be looking at whether Rio Tinto plans to sell more assets to pay off debt.

“They still have the Alcan engineering businesses and a few more general exploration (and) development assets to sell,” Peter Arden, senior research analyst at Ord Minnett said. “But I doubt they will get them sold any time soon although they almost seem to have a bit of a head of steam up on it now.”

And some reassurance on the company’s China business would cheer investors, Paul McTaggart of Credit Suisse said.

“The market has been awash with all sorts of news recently regarding the detention of Rio employees in Shanghai,” McTaggart said. “Reassurance of business as usual sales of iron ore to China will be welcomed by the market.”