Thu, 7 Aug 07:11:00 GMT
* H1 underlying earnings $5.12 bln vs $4.78 bln view of analysts
* Iron ore makes up 92 pct of profit
* Net debt cut to $16.1 bln, eyeing mid-teens before buyback
* Shares rose 0.8 pct ahead of results in flat market
MELBOURNE, Aug 7 (Reuters) - Global miner Rio Tinto raised hopes it will return cash to shareholders in February after topping market forecasts with a 21 percent rise in first-half profit on Thursday.
The Anglo-Australian giant slashed costs and cut capital spending quicker than expected at the same time as it boosted shipments of iron ore by a fifth, which helped it offset a 29 percent slump in iron ore prices this year.
Strong cash flows allowed Rio to cut net debt to $16.1 billion, putting it within the mid-teens range it wanted to hit before it would consider returning capital to shareholders, raising hopes for a share buyback in February, when it announces full-year results.
"There's pretty good scope there for the board to have some fairly good news in early 2015," Chief Financial Officer Chris Lynch told reporters in a conference call, adding the company is no longer under pressure to cut net debt.
Rio was confident about the long term growth outlook, but warned that the copper market had moved into surplus as new mine supply had come on and more production was expected over the coming year.
The company said it expects 125 million tonnes of high-cost iron ore supply to be taken out of the market in 2014 as lower-grade producers from China and producers in smaller iron-ore producing countries cut output.
"So the outlook is good...and we're in a good position to thrive," Chief Executive Sam Walsh said on the call.
Underlying earnings rose to $5.116 billion in the six months to June, up from $4.229 billion a year earlier. Analysts had expected underlying earnings of $4.78 billion, according to an average of seven analysts polled by Reuters.
Profit from iron ore, which made up 92 percent of underlying earnings, rose 10 percent to $4.68 billion, while copper earnings rocketed 71 percent to $594 million. Its long-suffering aluminium business reported a 74 percent rise in profit to $373 million.
As expected, Rio said it would pay a half-year dividend of $0.96, in line with its policy of paying half of the previous year's dividend.
While celebrating the success of its iron ore expansion, Rio Tinto last week exited its disastrous investment in coal assets in Mozambique, selling most of the Riversdale business it paid $3.7 billion for in 2011 for just $50 million. [ID:nL6N0Q51X6]
Rio Tinto's Australian shares have fallen 2.8 percent this year, underperforming a slight rise in the S&P/ASX 300 mining index <.AXMM>.
(Editing by Muralikumar Anantharaman)
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