The Investment Column: Copper plunge nails RTZ profits

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RTZ could have wished for a more propitious six months to announce its first results since the mining giant's December merger with CRA, a former Australian associate. The Sumitomo scandal, combined with a strong Australian dollar and problems at the huge new smelter being commissioned at the Kennecott business in the US, has driven a copper nail through first-half profits.

The figures are complicated by the fact that the new RTZ-CRA maintains separate share quotations in London and Sydney, and now reports in US dollars. Reported pre-tax profits slumped from $1.02bn (pounds 640m) to $891m in the six months to June, which after stripping out an exceptional write- down last time, translated into a 22 per cent fall in net earnings to $552m.

The main problem for RTZ has been the collapse in metal prices in the wake of Sumitomo, especially copper, which last year accounted for just over half pre-tax profits. Down 13 per cent in the first half, the fall in copper, along with aluminium and molybdenum prices, wiped $194m from the bottom line, with the higher Australian dollar taking a further $34m.

The hostile market environment was exacerbated by operational difficulties. The failure of equipment and an explosion have set back full commissioning of Kennecott's Garfield smelter for Bingham Canyon copper production by around five months, hitting earnings by around $100m.

The group remains bullish about copper, and world economic growth appears to be picking up. That confidence was good for a 30p rise in the shares to 955p yesterday, putting them on a forward multiple of 18, assuming net profits for RTZ of pounds 740m this year. With other output coming on stream around the world, that looks high enough.