Rio Tinto, the world's second-largest iron-ore producer, is expected to stick with its spending plans when it announces first-half results on Wednesday, even as profits fall sharply on lower prices and softer Chinese demand.
Consensus forecasts for the miner point to an almost 40% drop in interim underlying earnings, to $4.9-billion.
Investors are keenly awaiting an update on Rio's efforts to control stubbornly high cost inflation in the face of a Chinese slowdown - a combination which last month dragged rival Vale , the world's largest iron-ore producer, to its worst quarterly result in two years.
But they are also homing in on Rio's spending plans, particularly projects like Rio Tinto-operated Mongolian copper mine Oyu Tolgoi, which will help diversify earnings that are largely reliant on steelmaking iron-ore.
Rio, like its diversified peers, is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook. But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own plans to date.
CE Tom Albanese said last month the company's key expansion projects still stacked up.
"At this time, we anticipate Rio will hold to its $16-billion spend planned for 2012," Morgan Stanley said in a note.
The bank's analysts said Rio's growth projects were more incremental and therefore less contentious than those of rival BHP Billiton, which has said it is reviewing the sequence and pace of its major investments.
Rio Tinto committed in June to spend $4.2-billion expanding its Pilbara iron-ore operations in Australia and is also sticking to plans to develop the Simandou project in Guinea, confident in the medium- to long-term outlook for iron ore.
With iron-ore prices under pressure, investors are eager to see progress on the Oyu Tolgoi copper and gold project, where commercial output is due to begin in 2013. That hinges on securing power from China soon.
Rio is also expected to update the market on its efforts to turn around its aluminium business, where it has an ambitious EBITDA margin target of 40%, and on plans to restructure, sell or spin off its diamond arm.
Source: Reuters
