Pilbara drives Rio rebound
Rio Tinto will hand out a record interim dividend and make an unexpected $US1 billion expansion of its share buyback program, driven mainly by Rio’s Pilbara iron ore business and the strong price it received for its product in the first half.
The miner reported last Wednesday underlying earnings of $US3.9 billion ($4.9 billion) in the six months to the end of June, up 152 per cent on its 2016 result, but below analysts’ forecasts of $US4.2 billion.
Investors will be heartened by a $US3 billion cash splash by Rio in the form of a record $US1.10 ($1.38) interim dividend, representing a 50 per cent payout ratio, and a $US1 billion expansion of its existing $US500 million share buyback program.
Rio’s Pilbara iron ore operations again delivered the lion’s share of income, with underlying earnings of $US3.3 billion, up 87 per cent on the same half last year, despite a 3 per cent dip in shipments to 154.3 million tonnes. The result came on the back of a 42 per cent rise in the average price received for its ore to $US62.40/wmt, and further cash cost savings.
The iron ore spot price hit a threeyear peak of nearly $US95/t in February, before dipping below $US55/t in late June. It was $US73.56 last Wednesday. Cash costs across Rio’s Pilbara operations fell to $US13.80/t in the first half, compared with $US14.30/t in the same period of 2016, delivering margins of 69 per cent, compared to 58 per cent previously.
Chief financial officer Chris Lynch said the company had a magnificent asset in its Pilbara iron ore business, but rejected suggestions the company was over-exposed to the commodity.
He said the company had lightened its exposure to coal with the recent sale of its Coal & Allied business to Yancoal for $US2.69 billion, but its aluminium assets were performing well and the company was bullish on the prospects of its copper division.
Iron ore stockpiles at Rio Tinto's Cape Lambert port facility near Wickham.