MELBOURNE • Rio Tinto Group, the world’s No 2 mining company, will aim to continue to boost cash returns after pledging more than US$7 billion (RM28.7 billion) to investors, bankrolled by a spree of asset sales and surging profit.
The producer lifted its interim dividend payment by 15% to a record, bolstered a share buy-back programme by US$1 billion and approved plans to hand investors about US$4 billion of proceeds from divestments, London-based Rio said in a statement yesterday.
With Rio unaffected so far by trade tensions, seeing only a gradual slowdown in China — its key market — and chasing further asset sales, the producer may have firepower to hand back even more cash with annual results in February.
“I’m pretty confident that we will ret urn more,” CEO Jean-Sebastien Jacques told reporters on a conference call after reporting earnings hit a four-year high.
Rio’s total package of US$7.2 billion of cash returns in the first half (1H), which includes an interim dividend of US$1.27 a share, compares to a cash payout of US$3 billion in the same period of 2017, according to filings.
The biggest miners are using bumper cashflows to reward investors and fund development of new projects as continued strong demand in China supports higher profits. Anglo America n plc last week approved a US$5 billion copper mine in Peru as 1H profit rose, while Vale SA said it will buy back US$1 billion of its own shares after earnings jumped.
While Rio has some concern over rising inflation and threats to global trade, the company isn’t experiencing any impact so far, Jacques told reporters. The producer also remains confident on the short and long-term outlook for China, he said.
Rio’s underlying profit rose 12% to US$4.4 billion in the six months through June on better base metals prices and higher iron ore volumes. That compared to US$3.9 billion a year earlier and a US$4.45 billion average estimate among three analysts’ forecasts compiled by Bloomberg.
Rio will continue to invest in growth and also look to “further strengthen our portfolio,” Jacques said in the statement, adding that inflationary pressures were being experienced across the industry.
Rio lifted its forecast for capital expenditure in 2020 to US$6.5 billion from a previous estimate of US$6 billion.
“The additional US$1 billion buyback should be taken as a positive, and serves as a reminder of the strong balance sheet,” RBC Capital Markets analyst Tyler Broda said in a note, adding that the results were hampered by cost pressures.
“The return of cash proceeds from asset sales in future periods is also likely to drive expectations.” Rio fell as much as 4.3% in London trading.
The producer, already expanding a copper mine in Mongolia and building a bauxite operation in Australia, is working through studies on potential developments of the Koodaideri iron-ore mine, the Jadar lithium project and a mineral sands development in South Africa, according to a separate presentation. A study on the Resolution copper project in Arizona, a joint venture with BHP Billiton Ltd will be completed by 2021, Rio said.
Rio’s balance sheet is being bolstered by asset sales announced this year of about US$8.5 billion, including Australian coal mines and an agreement to exit its interest in Indonesia’s Grasberg, the second-largest copper mine.
Rio will continue to sell assets and is carrying out work to divest other operations, Jacques said, without specifying any details.
China’s efforts to support its economy are helping to sustain commodities, allowing top producers to shrug off concerns over global trade. Robust global growth should underwrite higher demand for commodities this half, Citigroup Global Markets Inc analysts including Ed Morse wrote in a note last month.
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