Mining company Rio Tinto (RIO) generates earnings from a range of base metals, allowing the company to profit from production and price increases on a global scale. Some bookkeeping items, however, made 2011 results look worse than they really were.
Rio Tinto is a United Kingdom company with shares trading as American Depositary Receipts (ADRs) on the New York Stock Exchange. The company mines iron ore, bauxite, copper, gold, molybdenum, diamonds and coals.
The bulk of the company's operations are in North America and Australia, but operations are spread around the globe from South Africa to Mongolia. Rio Tinto reports financial results twice a year instead of the quarterly reports required from U.S. corporations.
For 2011, Rio Tinto reported underlying earnings of $15.55 billion, up from $13.99 billion in 2010. However, the company elected to take an impairment charge of $9.3 billion, primarily on the company's aluminum operations.
The result was net earnings of $5.83 billion, down 59 percent from $14.24 billion a year earlier. Rio Tinto purchased Alcan for $38 billion in 2007 and the company's aluminum operations have not been profitable, forcing the writedown.
Due to the accounting charge, company executives, including the CEO, refused bonuses for 2011.
Short-term results for the company, over one to three years, are based on market prices of minerals and metals the company mines and processes. In 2011, the company received record prices for most of the ores it produces, yet those prices ended the year much lower than at the start of 2011.
For 2012, the analyst earnings estimates range from a low of $7.41 to a high of $13.38 per ADR share. Rio Tinto management bases its planning and capital expenditures on long-term growth of production, spending money where it believes will produce the most cost-efficient growth.
The Rio Tinto dividend philosophy is to increase the payout with increased company profits. In 2011, the total of the two semi-annual dividends was $1.45, up 30 percent from 2010. The stock currently yields 2.5 percent.
Recently, the analysts at Goldman Sachs upgraded RIO to a buy from their previous neutral rating. Of the 27 global analysts following the stock, 23 have Rio Tinto rated buy or outperform.
The company reports next on Aug. 7.
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