Rio drops plans for Pacific Aluminium unit sale

Rio Tinto has scrapped plans to sell its Pacific Aluminium division, blaming tough market conditions after reporting first-half underlying earnings down almost a fifth on last year.

Rio has been trying to divest the business, which is comprised of its Australasian aluminium smelters and the Gove alumina refinery in the Northern Territory, since October 2011.

“Following a comprehensive review we have also determined that the divestment of Pacific Aluminium for value is not possible in the current environment and it will be reintegrated into the Rio Tinto Alcan group,” said chief executive Sam Walsh.

The news came as Rio reported that underlying earnings fell 18 per cent to $4.2bn in the six months to the end of June compared with the same period a year ago, a result that was in line with market expectations.

The miner said it would pay a dividend of $0.84, a 15 per cent increase on last year.

The miner’s half-year profits fell as a result of lower prices for all of its commodities, with the exception of iron ore. This was partly offset by $1.5bn of cost savings. The figures were also impacted by a $300m hit related to a massive pit slide at its Bingham Canyon copper mine in Utah.

Iron ore accounted for all of Rio’s underlying earnings, while Rio’s troubled aluminium business posted a profit of $123m.

“We have more than 1,500 separate initiatives that are helping us reduce costs and preserve margins, even in a climate of lower prices. We have driven down our unit costs by more than 9 per cent compared with the first half of 2012,” said Mr Walsh.

On China, Mr Walsh said the company did not expect a hard landing. “The medium-term economic outlook remains volatile with a broader range of outcomes now possible,” he said. “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.”