Mining giant's profits drop following aluminium acquisition

9 February 2012

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9 February 2012 | Adam Leach

The chief executive of Rio Tinto has declined his bonus after net profits at the company dropped by 59 per cent as a result of a poorly judged acquisition of an aluminium company, the company’s annual results revealed.

The fall in net profits was largely down to a drop in the price of aluminium that was compounded by higher raw material costs. The impact was so strong, that following the acquisition in 2007 of Canadian firm Alcan for around $38 billion (£23.9 billion), the value of it has dropped an estimated $8.9 billion (£5.6 billion).

As a result, chief executive Tom Albanese and chief financial officer Guy Elliot decided to forego their bonuses. Explaining his decision in the results, Albanese, said: “In total, impairments were $9.3 billion (£5.8 billion) [this includes the $8.9 billion] which led to a 59 per cent decline in net earnings to $5.8 billion (£3.6 billion). As the acquisition of Alcan happened on my watch, I felt it only right not to be considered for an annual bonus this year.”

He said that despite demand for the metal continuing to rise, a surplus of supplies for the past five years has seen prices remain subdued. In response, the company is looking to offload a number of assets in the aluminium business while investing in further technology and automation.

Albanese said: “We are determined to tackle these cost issues and are accelerating a number of cost and productivity initiatives to control those costs we can influence. We will also continue to mitigate some of these cost increases, through our industry-leading investment in technology, which will lead to increasing automation and improved productivity.”

The company is also in the process of doubling steel output in Western Australia, which will leave it “ideally placed to capture the world’s growing demand for steel”.

Other factors reducing net profit included: higher energy costs, totaling $249 million (£157 million), and raw material and input prices, $514 million (£325 million). Costs resulting from severe weather conditions were $261 million (£165 million).

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