The apparent immodesty of the improved rewards offered to Rio Tinto owners after the return of comparative normality to the Anglo-Australian miner's markets, profits and balance sheet serves to disguise the mood of management and board that remains set cautious in the face of a new world of uncertainty.
On the back of iron ore prices that will continue to drive profits for at least an other quarter, no matter what happens in China, Rio's underlying profit of $US5.1 billion was considerably better than market consensus. And the decision to allow the dividend float above the targeted range of 40-60 per cent of profit means that expectations there, too, have been overreached.
But the quantum and exclusivity of the buyback flagged for this current calendar year might disappoint. Rio will invest up to $US500 million on buying back its British stock, which is effectively the mitigation of the particular benefit that Australian shareholders get from Australia's franking rules.
It is pretty clear that Rio had the cash capacity to meet expectation of more substantial capital management, but management and board have decided that the known unknowns urge caution.
So Rio has, instead, trimmed debt by a further $US3.3 billion over the half to reduce the net debt to a once unimaginable $US9.6 billion. This means that gearing now sits at a shallow 17 per cent, which is comfortably below the 20-30 per cent comfort zone set by chief financial officer Chris Lynch.
This welcome prudence has been inspired by a weight of cyclical and tectonic uncertainties, from the normal twists and turns of iron ore and copper markets to America's new order and the risk it poses to free trade generally and China's access to US market specifically.
Rio doesn't predict iron ore prices but like its fellow Pilbara pioneer, BHP Billiton, the London-based giant's management reckons prices have held higher for longer than expected and that risk now is on the downside.
On the supply side, the ramp up of Vale's S11D project will begin injecting material volumes through the back end of this calendar year and there is informed speculation that existing prices might deliver financial oxygen enough to see some of China's shuttered mine capacity flare back into production.
On the demand side, everyone expects continued strength. But there is speculation that Chinese mills might recover interest in lower-grade ores with the downshift from the 2016 year-end peaks in coking coal and manganese. As a rule of thumb, when the cost of other inputs rise, then steel makers go looking for higher-grade iron ore to ensure peak productivity from their mills.
The pattern of recent pricing would indicate that the mills are still hungry for premium material. The price for 62 per cent product bounced back through $US84 a tonne on Wednesday and the delta over landed 58 per cent products held firm at better than $US28 a tonne.
Meanwhile though there has been a steady recovery of iron ore inventories at Chinese ports. Three-quarters of that latency is low-grade material and more than half of it is being held by iron ore traders rather than mills. Either they are betting on a change in input mix or they have been forced long by official policy shifts aimed at reducing pollution.
Cooking with hot air
Victoria's ban on any onshore gas development has sailed unchallenged through the Parliament with the conservative coalition that is the Opposition siding resolute with the Labor government's economic vandalism.
As a result Victoria has slapped a permanent ban on so-called unconventional drilling technologies that have revitalised the US energy economy and then extended an existing moratorium on more routine onshore drilling until June 2020.
Victoria's ban and moratorium are as needless as they are plain lazy. They are the product of gutless political leadership, a point made just a little bit more graciously by Shell Australia chairman, Andrew Smith.
"Leaders in Spring Street continue to cave into activists and ignore the scientific data," Smith complained. Smith said "unconventional gas development can beneficially coexist with agriculture" and warned that "without additional gas production, spikes in energy prices will continue to hurt Victorian consumers and manufacturers".
Smith appeared particularly riled by the Opposition's advice that the industry should more take advantage of the drilling moratorium to more effectively engage with potential host communities.
"Industry will take this as a signal that Victoria is closed for business and will go elsewhere," he said.
Instead of seizing the moment to challenge the myth-making, misunderstandings and opportunism that sit central to the Daniel Andrews government's unique pair of onshore drilling bans, the Coalition instead claimed ownership of this retrograde plan.
The Coalition has supported a suspension of conventional drilling despite noting the industry has more that 30 years of "successful co-existence with Victorian country communities" . And rather than paint Andrews as the Greens poodle that he is, the Coalition decided to characterise the government as soft on fracking.
"Indeed, fracking has never occurred under a Liberal Nationals government," trumpeted a statement written in the name of state Liberal leader Matthew Guy and Nationals leader Peter Walsh.
"In contrast, the previous Victorian Labor government issued 73 licences for unconventional gas exploration and approved 23 fracking operations without public consultation.
"The Liberal Nationals have always said we will never allow anything to happen that puts at risk the quality or quantity of our groundwater because we know how important it is to our state," the statement said.
Farcically, in the very next digital breath, the Coalition complains that the costs of living and doing business in Victoria will rise because the Premier has failed in both gas and electricity policy. Certainly he has. But Guy is offering no sensible alternative and industry is furious at the Liberal leader's failure.
To be very clear, we too appreciate the value of fresh water and access to it. But the fact is that study after independent study has observed that the risk posed to aquifers and the potable subterranean water flows they support are limited and manageable. Landmark studies in the US and Australia have identified that fracturing of shale or coal seams is a relatively mature science that poses manageable risk if it is effectively and transparently deployed and appropriately regulated.
We asked Guy's office on Wednesday whether either the Opposition Leader had read the definitive 2014 report into coal seam gas drilling written by the NSW chief scientist, Mary O'Kane. We asked for some indication of any science that informed the three-year extension of a moratorium on conventional onshore drilling. Instead of answers we were redirected to the statement that triggered those questions in the first place.
So, just in case none of Guy, Walsh nor Premier Andrews have made themselves aware of O'Kane insights, we stand ready to help them out. The O'Kane review is notable for its sustained balance and sagacity. But our favourite bit has always been this: "The review studied the risks associated with the CSG industry in depth and concludes that – provided drilling is allowed only in areas where the geology and hydrogeology can be characterised adequately, and provided that appropriate engineering and scientific solutions are in place to manage the storage, transport, reuse or disposal of produced water and salts – the risks associated with CSG exploration and production can be managed."
"That said, current risk management needs improvement to reach best practice," she then asserted.
So, rather than ban fracturing and the rather less controversial horizontal drilling that is so much a part of the unconventional drilling business, O'Kane urged drillers to better understand what is happening in the bits of the earth's crust that they drive through, urging operators to work with government to become more transparent and accountable, urging governments to more practically and aggressively regulate what goes on at the surface and urging everyone involved to better communicate with and reward host communities.
