Global miners BHP Billiton and Rio Tinto should post solid six-month earnings growth, but results will feature hefty writedowns and mark the end of a China-powered boom.

Brokers have cut their forecasts for the world's biggest and third-biggest diversified miners following their production reports, and investors are now focused on how cost reductions and spot sales of iron ore might have helped them shore up profits.

Rising costs had been a major problem over the past two years, in face of labor shortages and soaring energy and steel prices, but those have now eased.

We will be looking for how well shipment volumes have held up in this environment. Also, given depressed commodity prices, cost reductions are an area to watch, said Shawn Burns, a portfolio manager at Integrity Investment Management.

Rio Tinto faces the cloudier outlook as it struggles to offload assets and pay down $39 billion in debt, taken on when it bought Alcan at what turned out to be the top of the market in 2007.

In contrast, BHP has a strong balance sheet, and investors are waiting to see if it uses its cash to resume a share buyback, put on hold more than a year ago when it launched a hostile bid for Rio Tinto. It scrapped the $66 billion bid in November.

Fund managers said BHP could also pay a special dividend.

BHP Chief Executive Marius Kloppers has said the company was keeping its powder dry to potentially pounce on assets that its more distressed rivals might have to sell.


The December half marked the last period of stronger iron ore and coal prices and higher iron ore volumes, which will be the major driver in both groups' profits for July-December.

Analysts expect BHP to post a 13 percent increase in profit before one-offs for its July-December first half, to around $6.78 billion, based on eight broker forecasts.

But its bottom line will be much lower, hit by $3.3 billion in pre-tax writedowns flagged on its Ravensthorpe and Yabulu nickel operations and a write-off of the $450 million it spent on its Rio offer.

A key unknown is how much BHP fetched for sales on the spot market of iron ore that its long-term customers didn't want.

Rio Tinto is tipped to post an 8 percent rise in net profit before one-offs to around $4.21 billion for July-December, its second half, based on nine forecasts.

Analysts expect Rio to book one-off writedowns on its Alcan assets, following a 60 percent plunge in aluminum prices over the past six months.

Rio has already said it would axe 13 percent of its workforce, halve capital spending and halt plans to increase its dividend, as it aimed to pay off $10 billion in debt this year.

With its plan to sell $10 billion worth of assets last year stalled at $4.7 billion, Rio's shares have been weighed down by concerns it may have to raise equity to meet its debt reduction target this year.

We think news on asset sales will be a key driver of the stock in 2009, Morgan Stanley analysts said in a research note.

Rio said on Monday it had held talks to sell some assets to Chinese government-owned aluminum maker Chinalco, its biggest shareholder.

The Australian newspaper reported on Tuesday that Rio and Chinalco were lining up a $20 billion deal that would boost the Chinese group's stake in the miner to 15-20 percent from 9 percent now, and give it stakes in some key Rio operations.

Rio said last week it will sell potash assets for about $850 million and its Corumba iron ore mine in Brazil for $750 million to Vale, which ranks ahead of Rio as the world's biggest iron ore miner.

(Editing by Valerie Lee & Ian Geoghegan)

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