* H2 profit jumps 45 pct to $5.99 bln, beating forecasts
* Annual dividend up 15 pct to $1.92, tops consensus
* Exceeds forecasts on capex, net debt cuts
* Shares fall 0.5 pct in London, after hitting 11-month high
* CEO expects challenges for Guinea iron project development
By Sonali Paul
MELBOURNE, Feb 13 (Reuters) - Global miner Rio Tinto surprised investors with a 15 percent dividend hike after reporting a huge jump in second-half profit on Thursday, putting it in a strong position for a big capital return in 2015.
Rio's result will set the pace for other mega miners, who have shelved projects, axed costs, sold assets and cut debt over the past 18 months to satisfy shareholders wanting a bigger share of spoils from the mining boom.
"It's a pretty clear signal ... on how they intend to allocate capital in the future - more back to shareholders and less into the business," said Richard Knights, an analyst at Liberum in London.
Rio Tinto met or exceeded all the targets set out by Chief Executive Sam Walsh for 2013, cutting capital spending by 26 percent to $12.9 bln, cutting costs by $2.3 billion and paring net debt to $18.1 billion, down 18 percent from June.
That helped boost cash flows by 22 percent to $20.1 billion for the full year and allowed it to raise its annual dividend by 15 percent.
"That's the real proof in the pudding; that we're delivering greater shareholder value," Walsh told reporters on a conference call from London. "And it's also a tick in terms of the confidence we have in the business going forward."
Analysts had expected an annual dividend of $1.81 compared with the $1.92 that Rio declared.
"Earnings were ahead of consensus which was encouraging, but probably the most impressive measure was cash flow from operations and capex reduction which enabled them to reduce debt by much more than anyone expected," said Hunter Hillcoat, an analyst at Investec in London.
The company has said it will be in a position to consider a share buyback or other capital return to shareholders when its net debt is around $15 billion. While the company is much closer to that target, Walsh made clear the capital return investors are holding out for is unlikely to come this year.
"This year is a year of continuing to improve the business, to reduce debt and really to provide options for 2015 for our board in terms of shareholder return and in relation to growth," he said.
Underlying earnings for the six months to Dec. 31 rose 45 percent to $5.99 billion from $4.12 billion a year earlier, based on Reuters calculations off the full-year result, and compared with analysts' forecasts of around $5.49 billion.
For the full year, Rio posted a net profit of $3.665 billion, but that was marred by impairments on its Oyu Tolgoi mine in Mongolia, a project overrun in aluminium and the closure of its Gove alumina refinery.
That result was up from a $3 billion loss in 2012 due to $14 billion in writedowns on its Alcan aluminium business and its Mozambique coal assets, which led to the sacking of then CEO Tom Albanese.
A stronger balance sheet means major divestments will not be necessary this year but Rio Tinto will keep its door open for valuable offers, Walsh said.
At the same time the company is not planning major acquisitions but its focus is on organic expansion in iron ore and copper, its largest businesses.
"I want to invest in the best projects and at the moment that is in iron ore and copper, with the other businesses being run for cash and unlikely to get any major capital," Walsh said asked whether he intended to diversify more.
Rio's development of the southern part of the large Simandou iron ore deposit in Guinea though has been slowed down pending approval from Guinea's first democratically elected assembly for a legal framework for the multi-billion dollar project.
"It's progressing well but it is very complex... It's a first off for this national assembly so I am expecting that there'll be a few challenges there," Walsh said.
For the aluminium business Rio had considered options such as a spin-off or a joint venture but finally decided to keep it and try to improve it while waiting for a market turnaournd.
Analysts and investors have said the latest round of results from the big miners could help drive a turnaround in their shares, which have underperformed the broader markets over the past year as investors shunned miners on fears of cooling growth in China and an expected slump in iron ore prices.
Other big miners including BHP Billiton , Anglo American, Brazil's Vale SA and Glencore Xstrata are due to report in coming weeks.
Rio's shares were down 0.5 percent by 1516 GMT at 3486.0 pence in London, after climbing to an 11-month high after the result.
The biggest risk for Rio Tinto is that new iron ore supply from its mines and those of rivals BHP Billiton and Fortescue Metals Group in Australia's Pilbara will drive down iron ore prices this year.
Iron ore made up nearly 90 percent of Rio's earnings in 2013, while the rest largely came from copper.
Walsh played down the risk of a drop in iron ore prices, saying Rio has been able to sell all its iron ore, adding that Chinese steel mills need the high quality material Rio produces to help cut deadly smog.