* H2 underlying profit slumps 47 pct to $4.15 billion
* Ups full-year dividend 15 percent to 167 cents/shr
* Iron ore makes up nearly all of group's H2 earnings
* Rio sees pick-up in China continuing
* London shares down 1.8 pct
By Sonali Paul and Clara Ferreira-Marques
MELBOURNE/LONDON, Feb 14 Rio Tinto's new
chief said he would slash costs, sell weak assets and spend more
carefully after the world's no.3 miner reported a $3 billion
full-year loss, its first ever.
Chief Executive Sam Walsh, the group's former iron ore boss,
was appointed last month after his predecessor was sacked for
misjudged deals in aluminium and Mozambican coal that led to
$14.4 billion in writedowns and left the company in the red.
"We can do better and I will improve this great company
further," Walsh told reporters, saying he would take a more
aggressive approach to selling assets that no longer fitted with
the company's goals, and aimed to control a cost base that has
soared $2 billion per year since 2009.
Rio, like rivals across the sector, has come under fire over
boom-year investment decisions that have cost investors billions
as deals soured and big-ticket projects overran.
Walsh, a veteran of the auto and mining industries, is one
of a new generation of mining bosses committed to reversing past
excesses. He took pains to all but rule out any further
Walsh is also under pressure to return more cash to
shareholders, in a sector where yields have lagged as miners
chased growth. Eager to woo bruised investors, Rio raised its
full-year dividend 15 percent, more than analysts had forecast.
But the miner dashed hopes it could launch a fresh campaign
to buy back shares, telling investors there was no immediate
likelihood of such a move, citing its commitment to a single "A"
credit rating, planned spending on growth and market conditions.
Rio Tinto, like bigger rival BHP Billiton,
has a "progressive" dividend policy that calls for it to
steadily increase dividends in good times and bad, a policy that
analysts say should be scrapped. Rio has excluded that for now.
"The dividend is better and the company is showing a renewed
focus on pleasing its shareholders through better capital
discipline," said Tim Schroeders, portfolio manager at Pengana
Capital. "Managing costs is going to be a challenge, in terms of
meeting their prescribed targets."
Rio plans to cut a cumulative $5 billion by the end of 2014,
two-thirds of that from aluminium and energy units which have
seen much of the rise in costs. Efforts will include a salary
freeze for its energy arm and cutting back city-centre offices.
Walsh said he would also review all the group's projects -
including the troublesome Mozambique coal operations bought in
2011, which he said were not currently on the disposal list.
While head of of Rio's iron ore unit, the 63-year-old cut
costs, secured stakes in high-quality deposits and automated
operations with driverless trucks and trains run from a
high-tech centre 1,500 km (940 miles) away from the mines.
Cost-cutting remains high on his agenda.
"It's really kind of laying down the law and it's a very
stoic, serious strategy of focusing on cost-cutting, driving
only projects with superior returns from investment capital,"
said Mark Taylor, senior resources analyst at Morningstar.
There is no shortage of challenges ahead for Walsh,
including decisions on Rio's Pacific Aluminium and diamonds
units, both stuck on the auction block for over a year, and on
driving growth outside its powerhouse iron ore arm, which
generates nearly all of Rio's profits.
The company is considering selling Pacific Aluminium, with
assets in Australia and New Zealand, as a whole or in parts, or
floating it, but has yet to make a decision.
Walsh also faces a test to his diplomatic skills in
Mongolia, home to the group's Oyu Tolgoi copper-gold mine. Walsh
said the Mongolian government had indicated a wish to review a
key 2009 investment agreement, as it comes under pressure to
increase the country's share of mining profits.
"This undermines the partnership we have built and the
stability on which a project of this size and scale depends,"
Walsh said. "It puts at risk future investment."
Rio is also pushing ahead with its Simandou iron ore project
in Guinea, where it is awaiting government decisions on a
framework agreement and on financing for the country's share of
infrastructure linked to the mine. Walsh declined to comment on
whether this could delay the first shipment of ore, due in 2015.
Rio reported a 47 percent plunge in half-year underlying
profit, its worst since 2009 due to sharp falls in commodity
prices, although the result was slightly better than expected.
Underlying profit excluding writedowns fell to $4.15 billion
for July-December 2012, based on Reuters calculations.
With iron ore prices having nearly doubled from a trough
around $87 a tonne last September, the iron ore business is
likely to dominate again in the first half of 2013.