Even with its coffers bulging with cash from asset sales and the surprise surge in commodity prices in late 2016, miner Rio Tinto has refrained from handing out too much of the spoils to shareholders, deciding to hold the final dividend in line with guidance while delaying any share buy-back until later in the year.
It raised to $US1.25 ($1.64) from US107.5¢ the final dividend, giving an annual payout of $US1.70 ($2.23) for 2016 when the interim dividend of US45¢ (59¢) is included – in line with the commitment given when it flagged a lower payout a year ago when releasing its 2015 results. The full year payout in 2015 was $US2.15 ($2.82).
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Rio Tinto set to lay off 500 workers
Rio Tinto has announced it will lay off 500 workers as the company prepares for a drop in iron ore prices. Vision: Nine News Perth.
As well it will launch a $500 million share buy-back at a time to be decided, which is well short of the $US2 billion share buyback anticipated by analysts, although that expectation had been tempered by the recent rise in the miner's share price. From its long-term low a year ago of $37.03, Rio's shares have rallied steadily, touching a recent long-term high of $67.85 last last month.
The share buy-back will result in shareholders receiving 70 per cent of underlying profits, the company said.
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Ahead of the release of the results, the shares gained 53¢ in local sharemarket trading to close at $65.69. In London trading overnight, the shares surged a further 2.8 per cent.
For 2016, Rio earned a net profit of $US4.6 billion, a reversal from the $US866 million loss in 2015, which was due mainly to impairment and derivative losses.
The underlying profit for 2016 ran at $US5.1 billion, slightly ahead of consensus forecasts by analysts of $US4.9 billion, which was powered by the iron ore division that contributed $4.6 billion, with profit margins of 63 per cent.
This towered over margins at its next most profit profitable arm of copper and diamonds, which has gross margins of 35 per cent. For the coal and minerals unit, the margins were 30 per cent, declining to 28 per cent for aluminium.
The miner also warned of potentially "material financial costs" from any litigation, which could result in the wake of the recently disclosed $US10.5 million in payments to former government advisors relating to the Simandou project in Guinea, as well as impairments relating to coal tenements it held previously in Mozambique.
The surge in cash helped slice $US4 billion to $US9.6 billion the level of debt, with gearing, the ratio of debt to equity, dropping to 17 per cent.
Additionally, Rio has signalled it will continue to constrain costs with capital spending to run at around $US5 billion in 2017, rising to around $US5.5 billion in 2018 and 2019 while it is targeting raising free cash flow by another $US5 billion by the end of 2021 from productivity improvements.
"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," the chief executive Jean-Sebastien Jacques said.
Cash was boosted over the past year with the sale of the Bengalla and Mount Pleasant coal mines, along with its share of the Lochabar aluminium smelter in Scotland. Earlier this month it agreed to sell the Coal and Allied Industries coal mines in NSW, for $US2.5 billion, although settlement is not expected for several months.
The profit rebound took place as iron ore prices resumed their rally in China, following the end of the Lunar New Year holiday, rallying another 3.7 per cent in Dalian, China, Wednesday, which followed a 1.4 per cent gain Tuesday.
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