Australian Mining Giant Rio Tinto Declares Record Dividend, Increases Buyback

The rebound in prices of coal, copper, aluminum and iron ore has seen mining giant Rio Tinto’s profit and cash boom $RIO showed in it’s Q4 earnings report Wednesday, Iron ore stocks have been bid since the US Tax Reform bill. Lithium appears next for Rio to increase interest in.

The rebound in prices of coal, copper, aluminum and iron ore has seen mining giant Rio Tinto’s profit and cash boom $RIO showed in it’s Q4 earnings report Wednesday, Iron ore stocks have been bid since the US Tax Reform bill. Lithium appears next for Rio to increase interest in.

rio tinto iron ore mine

China to keep pushing demand for Rio iron ore?

Earnings 

In full year to December 31, 2017 underlying earnings rose 69% to $8.6bn, driven by the $4.1bn post-tax impact of higher prices, while basic earnings per share increased 91% to 490.4 cents. Consolidated sales revenues rose by $6.2bn from 2016 to $40bn, mostly due to higher average commodity prices. 

Reaction: Rio Tinto PLC NYSE: $RIO

Open $54.46 ▼ 0.70 (-1.27%)

Highlights

  • Declared a record full-year dividend, raising it 71% to US$2.90 a share, up from US$1.70 in 2016
  • Additional US$1 billion in shares by the end of 2018. That is in addition to the US$1 billion share buyback announced midyear and a US$2.5 billion buyback linked to the sale of its Coal & Allied business. 
  • $RIO’s debt  gearing has shrunk to 7% from 17% at the end of 2016.
  • Operating cash flow of $13.9-billion for 2017, up 64% from the previous year

Outlook 

  • CEO Jean-Sebastien Jacques said Rio Tinto has “a growth agenda” and is screening opportunities, including in commodities it doesn’t already produce (read rare earth and other electric vehicle inputs).
  • We are very well positioned to take advantage of any kind of opportunities,” Rio Tinto’s Mr. Jacques said Wednesday
  • Lithium is among the commodities $RIO is looking at said Chief Financial Officer Chris Lynch. 
  • The challenge facing Rio Tinto, Mr. Lynch said in an interview, was getting an asset for the right price.
  • “You are not going to steal assets in this day and age,” Mr Lynch said.

  • “We have got a lot of firepower in our balance sheet, We’ve got good capacity, we are looking at a lot of different things – but we are going to stay disciplined.” Lynch also said
  • Mr. Jacques is upbeat on the world economy, despite recent volatility in global markets with China’s economy looked good in the medium- to long-term and highlighted robust growth across most major markets. 
  • “Today, we are in a good space. Mining at the end of the day is a GDP-driven industry.”Mr. Jacques said

Competitors

BHP Billiton Ltd. $BHP is due to report a half-year profit on Feb. 20, is coming under pressure from activist investor Elliott Management Corp. to sell assets, delay risky projects and rethink its dual-listed corporate structure to improve shareholder value.

Investors are nervous about the mining industry’s record in doing big deals.  

Glencore PLC so far has led the charge on acquisitions in coal and zinc operations. 

Electric Vehicles

Electric vehicles are seen by many a swing demand point for commodities such as lithium and cobalt used in batteries, along with more widely used copper and nickel.

Rio Tinto already owns one lithium deposit in Serbia that is yet to be developed.

Cash Flow and Debt Improvements

Rio Tinto said it had boosted cash flow by US$400 million from improved productivity, despite grappling with higher raw-material costs. Management hit a target to strip out US$2 billion in cash costs midyear, six months earlier than planned. Rio Tinto said net debt reduced by 60% to US$3.85 billion to its lowest level in a decade.

The last few months of 2017 and earlu 2018 saw risk thrown out the window with risk-on the theme, stock markets went to record highs, the crypto craze was bewidlering and commodities were touted. With Goldman Sachs put out a broad recommendation on commodites. February has seen the stock market crash bringing back memories of 2008. That crisis was devastating for miners,

$RIO is in a different place this time with cash holding and in a position to aquire not unload for slashing debt. New commodities like rare earth and Lithium are on the companies radar after raising dividends and buybacks there is cash to be stategic with.

Rio Tinto Group’s best profit in three years and a record dividend is yet another sign that miners are reaping the benefits of a surge in commodity prices. Yet the sheer size of Rio’s cash flow is starting to raise another question: how else will the world’s second-biggest mining company invest all its money? The company has so far focused on rewarding shareholders and on Wednesday, it promised a full-year dividend of $5.2-billion and an additional $1-billion stock buyback.

Arizona Copper

RIO approved spending US$368-million to continue the future development of the Resolution copper project in Arizona, a joint venture with BHP Billiton in December.

Why Iron Ore Prices Are Bid

For the premium iron ore companies the impetus comes from a number of sources.

1. China is making large inroads to clean air reform, to the point they have now a shortage of coal. With iron ore the higher quality gra,des are being sought. The highest grades of iron ore come via BHP Billiton $BHP and Rio Tinto $RIO

2. Sebastian Pinera won the Presidential election in Chile which is seen as a positive for miners with his more conservative policy. $Vale, $RIO and $BHP have exposure to Chile.

3. Investment banks have been pushing clients into commodities and talking up China drawing speculative money to the sector. Goldman was just the latest Freeport-Moran $FCX also rallied with copper and Chile positives. 

4. With the move to commodities there has been a bottoming of the Australain dollar which has seen those dolalrs being put to work in the ASX with mining leaders like $BHP and $RIO.

5. The bullish mania that has gripped stocks in America with the tax bill which will see corporate tax fall to 21% in 2018 with the passage of the Republican Tax Cuts and Jobs Act.

Source: Rio Tinto, Bloomberg

From a Sunburnt Country…

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