Nicholas Grove is a Morningstar journalist.

Mining giant Rio Tinto (RIO) on Thursday announced an 11 per cent rise in full-year underlying earnings to a record US$15.5 billion.

But the figure was short of both Morningstar and consensus estimates for a figure in the US$16.4 billion to $16.7 billion range, following a year chairman Jan du Plessis said was characterised by "increasingly unpredictable markets".

"As with BHP's report for the first half of 2012, escalation in operating costs was higher than expected. Rio's result likewise fell short of the mark," said Morningstar global head of basic materials Mark Taylor.

"CEO Tom Albanese pointed to industry-wide high cost inflation in a number of hotspots. Strengthening Australian and Canadian currencies, escalating raw material prices and lower grades were complemented by adverse weather conditions to squeeze margins," he said.

"Key divisional under-performers were aluminium and copper, partially offset by better-than-expected numbers from the iron ore and energy divisions."

The miner also took a US$8.9-billion charge against its aluminium businesses, which largely related to the company's acquisition of Alcan.

Including the charge, the company's net earnings were down 59 per cent on the year to US$5.8 billion.

The charge also prompted CEO Albanese to forego his annual bonus. (Note that..Tye Burt)

In a note, Bell Potter's Charlie Aitken said he had suspected the group would write down the carrying value of its Alcan acquisition, which he said now makes an "all-but-irrelevant" contribution to group earnings.

"If you want to throw good money after bad, buy an aluminium smelter ... Rio's debt-financed bid for Alcan must make the top 10 list of all-time worst pieces of M&A," he said in an email prior to the release of the company's earnings.

"Yet, thankfully for Rio, they are still the biggest in Australian iron ore production."

In a statement, Rio said its iron ore division's underlying earnings of US$12,853 million in 2011 were 26 per cent higher than 2010.

This reflected higher prices and increased volumes, partly offset by adverse currency movements and higher costs driven by inflation, input prices, royalties and operational readiness, the company said.

Earlier this week, Rio announced it would spend a further US$2.9 billion on expanding its Pilbara iron ore operations in Western Australia.

While CEO Albanese acknowledged the company's results were primarily driven by its iron ore operations and higher prices, he said: "Not all of our divisions are enjoying the same tailwinds."

Rio Tinto Alcan's underlying earnings of US$442 million were 28 per cent lower than 2010.

Elsewhere, the copper division's underlying earnings of US$1,932 million were 24 per cent lower than 2010, reflecting lower volumes from lower grades, higher cash costs and an increase in evaluation expenditure, the company said.

The energy division's underlying earnings of US$1,074 million were 10 per cent lower than 2010, impacted by bad weather in the first half of 2011 and a stronger Australian dollar, Rio said.

Hard coking coal, semi-soft coking coal and thermal coal production ended the year 2 per cent, 7 per cent and 3 per cent lower, respectively, than 2010, it said.

Uranium production fell 38 per cent year on year, with substantially lower production at both the Energy Resources of Australia unit and Namibian operation, Rio said.

The diamonds & minerals division's underlying earnings of US$252 million were 23 per cent lower than 2010, after higher prices were offset by lower volumes and increased costs, primarily in the diamond business.

For the year ended 31 December 2011, the Rio group as a whole posted underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of US$28.5 billion, up 10 per cent on 2010.

Cash flows from operations were up 16 per cent to a record US$27.4 billion.

The company declared a full-year dividend of 145 US cents a share, up 34 per cent. It also said its US$7 billion share buy-back programme is on track for completion by the end of the first quarter.

Looking forward, du Plessis said the miner expects uncertainty in the financial markets, particularly around the euro, together with elevated price volatility, to continue into 2012.

"This leads us to remain cautious about near-term prospects. However, the medium to long-term picture remains very positive for metals and minerals as strong demand growth from emerging markets continues," he said.

"This, together with the strength of our balance sheet, gives us the confidence to press ahead with our value-adding organic growth programme, which has been enhanced in 2011 by the successful execution of a number of targeted acquisitions.

"I am confident that our established strategy of investing in and operating tier-one assets positions us well to deliver superior value to shareholders over the long term."