Rio Tinto earns US$7.4B in 2006

Surging demand from China for iron ore and copper resulted in a record-setting year for Rio Tinto (RTP-N, RIO-L) in 2006, but the company expects to see some moderation in 2007.

Net earnings for 2006 were US$7.4 billion — a 43% jump from 2005 for the world’s third-biggest mining company.

Cash flow from operations rose 36% to US$11.2 million and the full-year ordinary dividend rose 30% to US$1.04.

The company also reported record volumes in iron ore, alumina, U.S. coal and molybdenum.

And with record production and commodity prices, Rio Tinto returned US$4 billion back to shareholders. A US$3-billion share buy back was also announced in October.

In the 2006 report, Rio Tinto chairman Paul Skinner said that the company viewed the overall outlook for commodities as positive, with prices remaining well above their long-run averages in 2007.

“Looking to 2007, there are a number of uncertainties in the global economy, not least the direction of inflation and interest rates in major economies,” Skinner said. “We expect some moderation of global economic growth, although confidence in Japan and Europe is increasing.”

Skinner said growth in China was critical for Rio Tinto, but that the demand remains strong for Rio Tinto’s products.

The company has a pipeline of growth opportunities including a 49%-owned joint venture in Russia with Norilsk Nickel’s (nilsy-o, mnod-l) RioNor Exploration and a 19.9% investment in Ivanhoe Mines (IVN-T, IVN-N), which holds the Oyu Tolgoi copper-gold project in Mongolia.

Production will increase at the Yandicoogina iron ore mine in Western Australia to 52 million tonnes from 36 million tonnes and the Dampier port will expand to 140 million tonnes from 116 million.

As well, the company will expand the annual capacity of the Cape Lambert port in Western Australia to 80 million tonnes from 55 million at a capital cost of US$860 million, allowing Rio Tinto to handle 220 million tonnes of ore.

Other priority projects include Northern Dynasty’s Pebble copper-gold project in Alaska, the La Granja copper project in Peru and the Resolution copper-gold project in Arizona.

In a Bloomberg television interview, CEO Leigh Clifford said the company’s first focus is to create value investments.

“After that, we look at how we might return cash to shareholders in the most efficient means possible,” he said.

Clifford is retiring in May and although Rio Tinto hasn’t made any major purchases since buying North Limited in 2000, Clifford wouldn’t give any hints as to whether there would be any big news before his departure.

“Well, we never comment on anything of that nature,” said Clifford, who’s being replaced by Tom Albanese, director of group relations.

Though with uranium prices rising to about US$70 per lb. over the last six years from US$10, Clifford said Rio Tinto will likely focus on developing its existing uranium assets in the coming years, including the Rossing mine in Namibia, the Kintyre project in Western Australia and the Sweetwater project in Wyoming.