THE AUSTRALIAN
Update - Metal fatigue: Rio Tinto set for $5bn writedowns
Edited by : AL CIRCLE
2 min read
RIO Tinto could be facing more than $US5 billion of writedowns in February on its ailing aluminium and diamond businesses, on top of up to $US750m wiped from analysts' full-year profit forecasts.
Analysts sliced up to 5 per cent from 2011 full-year profit estimates for Rio after executives told the market that evaluation costs had risen and the aluminium unit was likely to only break even.
The aluminium unit, most of which was acquired in the ill-fated $US40bn Alcan takeover in 2007, is expected to bear the brunt of the unquantified writedowns flagged by chief financial officer Guy Elliott on Monday.
Deutsche Bank analyst Paul Young said Rio's aluminium business, which has already had about $US8bn of its assets and Alcan goodwill written off since the acquisition, now had an estimated carrying value of $US41bn. "A further writedown of $US5bn-plus could be easily realised with the 2011 results," Mr Young said.
At Monday's briefing, Rio guided the market to expect $US1bn of full-year, after-tax charges because of a higher spend on evaluation.
"This is well above what we had estimated and, we suspect, the market had anticipated," UBS analyst Glyn Lawcock said.
UBS cut its 2011 earnings forecast by 4 per cent to $US15.01bn, while Deutsche dropped its forecast by 5 per cent to $US15.89bn.
Bigger capital returns could be in order in February after Mr Elliott said he appreciated the importance of income to shareholders, and that the board would review where the level should be.
"More capital management can therefore be expected -- either a dividend-per-share hike and/or additional buyback, considering the quantum of franking credits (11 per cent) and low gearing position," Merrill Lynch analyst Peter O'Connor said.
Major Rio shareholder BlackRock has been pushing for more dividend payments from the big miners, particularly in light of the poor capital returns being offered from other sectors amid the current eurozone crisis.
Analysts sliced up to 5 per cent from 2011 full-year profit estimates for Rio after executives told the market that evaluation costs had risen and the aluminium unit was likely to only break even.
The aluminium unit, most of which was acquired in the ill-fated $US40bn Alcan takeover in 2007, is expected to bear the brunt of the unquantified writedowns flagged by chief financial officer Guy Elliott on Monday.
Deutsche Bank analyst Paul Young said Rio's aluminium business, which has already had about $US8bn of its assets and Alcan goodwill written off since the acquisition, now had an estimated carrying value of $US41bn. "A further writedown of $US5bn-plus could be easily realised with the 2011 results," Mr Young said.
At Monday's briefing, Rio guided the market to expect $US1bn of full-year, after-tax charges because of a higher spend on evaluation.
"This is well above what we had estimated and, we suspect, the market had anticipated," UBS analyst Glyn Lawcock said.
UBS cut its 2011 earnings forecast by 4 per cent to $US15.01bn, while Deutsche dropped its forecast by 5 per cent to $US15.89bn.
Bigger capital returns could be in order in February after Mr Elliott said he appreciated the importance of income to shareholders, and that the board would review where the level should be.
"More capital management can therefore be expected -- either a dividend-per-share hike and/or additional buyback, considering the quantum of franking credits (11 per cent) and low gearing position," Merrill Lynch analyst Peter O'Connor said.
Major Rio shareholder BlackRock has been pushing for more dividend payments from the big miners, particularly in light of the poor capital returns being offered from other sectors amid the current eurozone crisis.
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