Rio Tinto's report gets mixed reaction

The mining giant on Wednesday posted a seven per cent rise in full-year iron ore production, with a rise of eight per cent for its final quarter.

The growth was helped by strong Asian demand for the steelmaking ingredient.

However, Citigroup analyst Clarke Wilkins has downgraded his estimate for Rio Tinto's 2006 full-year net profit by 4.6 per cent to $US7.82 billion ($A9.96 billion), compared with $US5.21 billion ($A6.63 billion) reported in 2005.

His downgrade was driven by mixed fourth quarter results, higher exploration costs and a profit warning on Wednesday from Rio Tinto subsidiary Coal & Allied Industries Ltd.

"Fourth quarter production was mixed, but slightly weaker than expected, with maintenance-affected iron ore and copper cathode production offsetting strong US thermal coal volumes and titanium feedstock demand," Mr Wilkins said in a research report.

"Sales/shipments were generally better than production, especially in iron ore."

But he has upgraded his earnings forecast for 2007 by one per cent to $US8.62 billion ($A10.97 billion) and for 2008 by three per cent to $US7.6 billion ($A9.68 billion), on a better-than-expected increase in iron ore contract prices.

Rio Tinto secured a 9.5 per cent rise in its agreed iron ore price with China's biggest steelmaker, Baosteel.

The company reported a mined copper production increase of two per cent for 2006, however refined copper sank five per cent, led by a 37 per cent slump in the last three months of 2006.

Mr Wilkins said the copper price weakness may have shaved up to $US120 million ($A152.78 million) off earnings.

Also on Wednesday, Coal & Allied, in which Rio Tinto holds a 76 per cent stake, blamed congestion at the Port of Newcastle for a warning that second half earnings were likely to more than halve to $60 million.

Rio Tinto's full-year production of hard coking coal sank 18 per cent, with a four per cent dip in the fourth quarter.

But Goldman Sachs JB Were analyst Neil Goodwin said there was good news despite ongoing cost issues and the Coal & Allied warning.

He upgraded his 2006 net profit forecast by 0.7 per cent to $US7.38 billion ($A9.4 billion) while his forecasts for 2007 rose 0.4 per cent to $US7.9 billion ($A10.06 billion) and 2008 by 1.4 per cent to $US7.24 billion ($A9.22 billion).

"Other operations generally performed marginally better than our forecasts and we made marginal earnings upgrades, some of which extended into future years," Mr Goodwin said in a research report.

UBS analyst Glyn Lawcock left his estimates untouched, saying the report held no major surprises.

He is forecasting a 2006 net profit before goodwill and exceptionals of $US7.74 billion ($A9.85 billion), compared with $US4.99 billion ($A6.35 billion) in 2005.