Rio cuts debt, puts div­i­dend rises on hold

Pilbara News - - News - Stuart McKin­non

The re­cent dip in the iron ore price has not stopped Rio Tinto from con­tin­u­ing its debt-re­duc­tion strat­egy.

Fol­low­ing a sec­tor-wide trend to­wards cor­po­rate aus­ter­ity, the min­ing gi­ant an­nounced a $US2.5 bil­lion bond pur­chase plan.

The pro­gram in­volves a re­demp­tion no­tice for about $US1.72 bil­lion of Rio’s 2019 and 2020 notes and of­fers to buy up to $US781 mil­lion of its five 2021, 2022 and 2025 notes.

Rio de­scribed the move as part of its cap­i­tal man­age­ment plan.

Na­tional Aus­tralia Bank com­modi­ties an­a­lyst Michael Bush said the big min­ers had aban­doned pro­gres­sive div­i­dend poli­cies over the past year, pre­fer­ring debt re­duc­tion over share­holder re­turns.

“Now that bal­ance sheets are un­der con­trol, there’s the po­ten­tial for higher re­turns to share­hold­ers,” he said.

While re­turns to share­hold­ers would be lim­ited by re­cent com­mod­ity price falls, Mr Bush said Rio, BHP and Fortes­cue Met­als Group still had high mar­gins at cur­rent prices.

RBC Cap­i­tal Mar­kets an­a­lyst Paul His­sey said Rio’s an­nounce­ment re­in­forced the bank’s “out­per­form” rat­ing on the stock but warned it could limit the up­side to div­i­dend pay­ments in the near term.

“The debt re­pay­ments fur­ther strengthen the bal­ance sheet and point to the over­all strength of Rio’s cash­flow as it con­tin­ues to fund key growth projects (Sil­ver­grass, Oyu Tol­goi and Am­run) in com­bi­na­tion with dis­ci­plined cap­i­tal man­age­ment and share­holder re­turns,” he said.

Rio’s chief ex­ec­u­tive JeanSe­bastien Jac­ques told a con­fer­ence in Barcelona the com­pany re­turned 28 per cent of cash gen­er­ated to share­hold­ers last year and had the strong­est bal­ance sheet in the sec­tor.

Rio cut its net debt by more than $US4 bil­lion from $US13.8 bil­lion to $US9.6 bil­lion last year and re­turned $US3.6 bil­lion to share­hold­ers in the form of div­i­dends and share buy­backs, rep­re­sent­ing 70 per cent of un­der­ly­ing earn­ings.

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