Rio Tinto to reveal capex cuts, earnings drop in first-half report

By James Regan

SYDNEY (Reuters) - Rio Tinto (RIO.AX) (RIO.L) is likely to unveil additional capital spending cuts on Thursday when it posts a sharp drop in half-year profit due to lower commodities prices.

Also, with construction spending winding down in iron ore operations as the Anglo-Australian miner nears its output targets, the results will signal to what extent greater economies of scale are offsetting a collapse in prices.

First-half iron ore sales of 146.5 million tonnes reported by the company on July 16 were 8 percent higher than the first six months of 2014.

Spot iron ore , on the other hand, opened the year at $71.20 (45.70 pounds) a tonne and finished on June 30 at $59.30, down 17 percent.

Deutsche Bank expects Rio Tinto to report that underlying first-half earnings fell 43 percent to $2.9 billion from the same period a year ago, matching a Thomson Reuters Starmine mean forecast. UBS puts the first-half figure at $2.7 billion.

In July, Rio Tinto Chief Executive Sam Walsh underlined stepped-up efforts to bring down costs at its iron ore mines.

The company's break even price for iron ore - where it is not making or losing money - stands at roughly $31 a tonne, among the lowest for the sector.

The major plunge in iron ore values came in the first half of the year, with the spot price hitting a record low of $44.10 a tonne on July 8. Even with a modest recovery to $55 a tonne on Tuesday, it's still down more than 22 percent this year.

Analysts have not ruled out a reduction in Rio Tinto's 2015 capex target, after the miner put it at less than $7 billion in February. Coupled with plans to reduce operating expenditure by at least $750 million, this could set the stage for a follow-up to this year's promised $2 billion share buy-back.

"We think Rio might drop 2015 capex guidance to $6 billion and 2016 guidance to $5 billion," Deutsche Bank analyst Paul Young said in a note, adding that he did not expect this to impede production growth.

Rio Tinto has set a precedent for outperforming its own cost-saving targets, recording $4.8 billion in reductions between 2012 and 2014 against a goal of $4.4 billion.

(Editing by Tom Hogue)