SYDNEY: Global miner Rio Tinto more than doubled its first-half profit buoyed by Chinese iron ore demand and rewarded shareholders with a record interim dividend and $1 billion in share buybacks.
Underlying earnings for the six months to June 30 of $3.94 billion missed forecasts for $4.19 billion but were well above last year’s $1.56 billion following a recovery in iron ore and other commodity prices.
Rio Tinto declared a record-high half-year dividend of $1.10 a share, equivalent to $2 billion, up from 45 cents a share a year ago. The latest buyback comes on top of a $500 million program announced in February.
“The Chinese economy has performed well in 2017 and the outlook signs for 2018 are positive,” Chief Executive Jean-Sebastien Jacques told reporters. “Beyond China, global economies have both improved in Europe and the US“
Rio’s London-listed shares were down 3 percent in early afternoon trade in London, with analysts citing some disappointment over the miss in earnings, linked to the cost of paying down debt early. The dip follows a nearly 9 percent rally in July as the market anticipated Rio’s results and analysts said the company looked strong.
“We still see upside in Rio Tinto, while the company offers some downside protection as well with the robustness of its balance sheet and top quality of its assets,” Bernstein analysts said in a note.
Rio’s Jacques said the focus was on “controlling the controllables,” including costs and margins to shelter the business from commodity market volatility.
Rio’s highest profile cost-cutting is in the Pilbara iron ore region of Australia where it is using automation and as “a next step” analysis of big data to maximize efficiency, Jacques said. Its Silvergrass development in the Pilbara, which should be fully commissioned by the end of this year, will add 10 million tons of annual capacity at lower unit costs, but Jacques said margin was even more important, especially as demand from China shifts to higher quality ore.
“We see a structural shift between high grade and low grade. At the end of the day, high grade will have a significant premium compared to low grade. If that means slightly more cost, so be it,” Jacques told Reuters in an interview.
Iron ore, Rio’s biggest earner, generated $3.255 billion in underlying earnings in the first half. It has been very volatile this year, trading at between $53 and $95 a ton and currently just under $74.
The market has been underpinned by a resurgence in steel production in China, which depends on high grade imported iron ore, providing Rio Tinto and other producers with ample margins on shipments.
Long-time iron ore bear Goldman Sachs in July raised its 2017 forecast to $70 a ton from $55.
Rio Tinto said capital spending should rise by around $500 million to $5.5 billion in both 2018 and 2019.
Jacques said he was keeping a “watching brief” on acquisitions, but only if they added shareholder value.
Rio Tinto’s focus on shareholder returns could add pressure on rival BHP Billiton, which reports full-year results on Aug. 22.
BHP has come under attack from activist shareholder US fund Elliott Management, which has called on it to beef up its cash management policy and remove underperforming
Rio Tinto rewards shareholders as first-half profits more than double
Rio Tinto rewards shareholders as first-half profits more than double
