Bumper pay­out for Rio in­vestors but miner warns of volatile prices

The Daily Telegraph - - Business - By Jon Yeomans

METAL prices are likely to re­main volatile for the rest of the year, the boss of min­ing group Rio Tinto warned, while promis­ing in­vestors the com­pany could keep de­liv­er­ing healthy re­turns.

The FTSE 100 miner has ben­e­fited from a re­cov­ery in the price of iron ore, the steel­mak­ing in­gre­di­ent that makes up the bulk of its earn­ings and which it mines in vast quan­ti­ties in Western Australia, for sale largely to China.

Jean-se­bastien Jac­ques, the firm’s chief ex­ec­u­tive, said “un­der­ly­ing de­mand” from China re­mained strong but it was hard to know if struc­tural changes to the coun­try’s steel in­dus­try would af­fect prices.

“There will be some volatil­ity, I have no doubt,” he said. “But do I worry about volatil­ity? No. What­ever is thrown at you, you should be able to make cash and make re­turns to share­hold­ers. We have a strong port­fo­lio of assets and a strong bal­ance sheet.”

Un­veil­ing its re­sults for the first half of the year, Rio re­warded in­vestors with pay­outs to­talling $2.5bn (£1.9bn), in­clud­ing an in­terim div­i­dend of 110 US cents per share, equiv­a­lent to $2bn – a record for the com­pany.

The An­glo-aus­tralian miner will also dou­ble its cur­rent $500m share buy­back scheme, so that it will have ac­quired $1bn of its own shares by the end of 2017.

The pay­outs draw a de­fin­i­tive line un­der the two-year down­turn that blighted the min­ing in­dus­try between 2014 and 2015.

Mr Jac­ques ad­mit­ted Rio had ben­e­fited from higher prices, but also pointed to a scheme to save $2bn in costs, which it has com­pleted six months ahead of sched­ule.

This helped Rio pay down net debt by $2bn, to $7.6bn, in the six months to June 30. Pre-tax prof­its jumped 57pc to $4.96bn, while rev­enue climbed nearly 20pc to $19.3bn.

How­ever Rio’s shares in Lon­don closed down 2.8pc at £34.03 af­ter its earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (Ebitda) – a fig­ure closely watched by an­a­lysts – fell slightly short of ex­pec­ta­tions at $9bn.

Mr Jac­ques said: “I don’t be­lieve it’s a miss at all”, cit­ing a hand­ful of one-off set­backs that had dented the first-half per­for­mance, such as a strike at a cop­per mine in Chile that Rio co-owns with BHP Bil­li­ton. The chief ex­ec­u­tive de­nied that Rio was re­turn­ing cash to share­hold­ers in lieu of bet­ter ideas, point­ing out it has projects un­der way to ex­pand pro­duc­tion of cop­per, iron ore and baux­ite, used in alu­minium.

“For us there is plenty of growth [ahead] but it’s all about de­liv­ery. We would rather progress fewer projects but do them in the right way than pur­sue lots of projects and de­liver them in an av­er­age way,” Mr Jac­ques said.

In­vestors could be in line for an­other cash bo­nanza this year, once the com­pany banks cash from the $2.7bn sale of coal mines in Australia to Yan­coal.

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