Rio Tinto promises bigger shareholder rewards

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.”