Rio Tinto to return $US3.6bn to shareholders
Rio Tinto has moved to swiftly reward shareholders, announcing a $US500m buyback after returning to profit for 2016.
Rio Tinto has looked to reward shareholders swiftly in response to the surge in commodity prices, announcing an unexpected $US500 million ($655m) share buyback after booking a return to profit for the full-year.
In a mixed update, Rio topped expectations for shareholder returns and underlying earnings, but fell short against market forecasts for net profit and revenue.
In the 12 months to December 31, the mining giant logged net earnings of $US4.62 billion ($6.05bn), falling short of the forecast range of analysts of $US4.8bn to $US5.05bn ($6.29bn to $6.61bn).
The report compares favourably to last year’s $US866m loss, with the group aided by the iron ore price more than doubling off February lows around $US38 a tonne.
The commodity most recently traded at $US82.20, while Rio shares have bounced from a February low of $39.60 to a Wednesday close of $65.69.
Meanwhile London-listed shares lifted on the news, adding 2.9 per cent in early morning deals.
Strength in the commodities space is best highlighted by the discrepancy in second-half earnings as against the first six months of the year, with the half-year result showing a more modest $US1.7bn ($2.23bn) profit as against the $US2.9bn ($3.80bn) in the second-half.
Analysts had been pondering the prospect of new capital management strategies in the lead-up to today’s announcement, with Rio Tinto delivering through a share buyback and higher dividend.
The group’s full-year payout came in at $US1.70 a share, above its target for “at least $US1.10”, and clearly topping market expectations for $US1.44.
However, the $US500m ($655m) buyback caught many off-guard, with Macquarie, UBS, JPMorgan and Deutsche Bank recently detailing their views a buyback would wait until later this year at the earliest.
The buyback will apply to its London-listed stock and will be carried out by Deutsche Bank and JP Morgan between March 1 and July 28 this year.
Rio Tinto also announced underlying earnings of $US5.1bn ($6.68bn) for 2016, up 12 per cent on last year and above market expectations of $US4.75bn ($6.22bn), while its focus on keeping costs in check ensured it reported capital expenditure below guidance of around $US4bn ($5.24bn).
Capex came in at $US3bn ($3.93bn), which was well shy of market estimates for $US3.6bn.
On a division-by-division basis, iron ore contributed 76 per cent of underlying earnings, with a full-year result of $US4.61bn.
Rio’s aluminium arm booked $US947m in underlying profit, while energy and minerals delivered $US610m.
The copper and diamond business was the laggard, reporting an underlying loss of $US18m, while ‘other operations’ showed red ink of $US86m.
All unit-by-unit numbers topped market expectations aside from the copper and diamonds arm.
The profit result came on revenue of $US33.8bn ($44.26bn), down $US1bn ($1.3bn) on last year and below analyst projections of $US34.3bn ($5.63bn).
“Today’s results show we have kept our commitment to maximise cash and productivity from our world-class assets, delivering $3.6 billion in shareholder returns while maintaining a robust balance sheet,” chief executive Jean-Sebastien Jacques said.
“At the same time, we strengthened the portfolio and advanced our high-value growth projects as we look to the future.
“We enter 2017 in good shape. Our value over volume approach, coupled with a robust balance sheet and world-class assets, places us in a strong position to deliver superior shareholder returns through the cycle.”
Rio Tinto offered few further details on a controversial contractual payment made several years ago in relation to the Simandou project in Guinea, that led to the sacking of two senior executives in November.
However, it noted the issue – along with a probe into a 2012 impairment over its coal business in Mozambique – “could ultimately expose the group to material financial cost”.
“The Rio Tinto board has established a dedicated board committee to keep these matters under review as they progress,” the miner said.
