Rio Tinto prom­ises big­ger share­holder re­wards

The Star Early Edition - - COMPANIES - Bloomberg

RIO TINTO Group has promised its share­hold­ers big­ger re­wards as the world’s sec­ond-largest miner reaps the ben­e­fits of an iron ore rally.

Rio in­creased its share buy­back by $1 bil­lion (R13.22bn) this year and plans to pay an in­terim div­i­dend of $2bn. The com­pany re­ported earn­ings that more than dou­bled from a year ear­lier. Nev­er­the­less, its shares slipped 2.1 per­cent as of 8.46am in Lon­don, be­cause some in­vestors hoped for an even big­ger pay­out.

“The com­pany has pro­moted the view that it’s go­ing to be a big re­turner to share­hold­ers,” said Hunter Hill­coat, an an­a­lyst at In­vestec in Lon­don. “Per­haps the mar­ket was look­ing for a lit­tle bit more. It wasn’t the knock­out blow that peo­ple were ex­pect­ing.”

The come­back in min­ing is gain­ing mo­men­tum, fol­low­ing a cri­sis in 2015 that forced the top pro­duc­ers to sell assets, cut costs and rein in spend­ing. With the in­dus­try still re­luc­tant to spend a lot of money on new mines or deals, div­i­dends and stock buy­backs are be­com­ing pop­u­lar. An­glo Amer­i­can sur­prised in­vestors last week by re­in­stat­ing its div­i­dend.

Un­der­ly­ing profit in­creased to $3.94bn in the six months to June, Lon­don-based Rio said yes­ter­day. That com­pared with $1.6bn a year ear­lier and missed the av­er­age es­ti­mate of $4.26bn from an­a­lysts sur­veyed.

Iron ore, Rio’s top money-maker, has ral­lied since mid-June on slower ad­di­tions to mine sup­ply.

Prof­its may have been weaker than some es­ti­mates as a re­sult of a $2.5bn bond buy­back, a de­ferred tax charge of $144 mil­lion re­lated to the Gras­berg cop­per oper­a­tion in In­done­sia and a $176m one-off pay­ment fol­low­ing a strike at Chile’s Es­con­dida mine, chief fi­nan­cial of­fi­cer Chris Lynch told re­porters.

Net debt fell to $7.57bn from $9.59bn at the end of 2016.

Higher earn­ings at Rio should con­tinue as iron ore’s re­bound is matched by other com­modi­ties, said Adrian Pren­der­gast, a Melbourne-based an­a­lyst at Mor­gans Fi­nan­cial.

“It’d be greedy to ex­pect a lot more from iron ore and the re­silience that the price has al­ready shown,” he said. “There’s a real chance of the re­cov­ery phase broad­en­ing into other met­als on im­prov­ing de­mand con­di­tions.”

Iron ore, Rio’s top mon­ey­maker, has ral­lied since midJune on slower ad­di­tions to mine sup­ply and ris­ing im­ports in China.

De­mand is likely to re­main steady over the next year, Fortes­cue Met­als Group said last week. Spot ore with 62 per­cent con­tent in Qing­dao de­clined 0.2 per­cent to $73.56 a ton on Tues­day, ac­cord­ing to Metal Bulletin.

“We are pretty con­fi­dent about China,” chief ex­ec­u­tive of­fi­cer Jean-Se­bastien Jac­ques said.

“2017 has been and will be a very good year for China. When you look at the met­rics, the early signs for 2018 and 2019 are pos­i­tive.”

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