Aluminium is Rio Tinto's albatross. As self-inflicted curses go, the miner's $38.1bn Alcan acquisition two years ago is hard to beat. It saddled Rio with huge debts, and dragged it into a $15.2bn rescue rights issue. Although it accounts for 60 per cent of Rio's assets, it is the biggest drag on its first half earnings, which more than halved to $2.6bn. The distraction may continue for a while: the near-term demand outlook for aluminium is still subdued.
To be fair, the miner's aluminium losses of $689m were not as dire as analysts feared thanks to drastic cost reduction initiatives by Tom Albanese, chief executive, including smelter closures. He has also had to fast-track disposals of non-core Alcan packaging assets and tame Rio's debt beast. Net borrowings rose slightly to $39bn, but will more than halve by year end thanks to Rio's cash call and $5.7bn of asset sales.
Aluminium is not the only thing weighing on Rio's share price: there are the miner's deadlocked iron ore price talks with Chinese steelmakers. Still, in spite of the official stand-off, Rio is getting its ore into China – albeit at the price agreed with Japanese and Korean mills, a third below last year's benchmark. Investors were disappointed that Rio had not benefited more from the currently high spot price, some 50 per cent above the benchmark. But at least spot price strength has weakened China's hopes of securing the lower benchmark it seeks.