The chances of a dividend hike and a possible share buyback when global miner Rio Tinto releases its annual earnings early next month have risen after it finalised deals to raise as much as $US3.8 billion ($5 billion) from asset sales in recent months.
Late Tuesday, Rio said it would raise $US2.45 billion from the sale of steaming coal mines in NSW, which followed the sale for as much as $US1.3 billion of an iron ore prospect in Africa. In both cases, it is selling to Chinese buyers.
![A worker in a mine in China operated by Yanzhou Coal. Yancoal, owned by Yanzhou, is buying Rio coal mines in NSW.](/web/20170207011453im_/http://www.smh.com.au/content/dam/images/g/s/w/y/r/p/image.related.articleLeadwide.620x349.gtycks.png/1485327837303.jpg)
Yancoal Australia, which is a locally listed arm of a state-owned enterprise in China, is acquiring the coal mines, with the African project, Simandou, being sold to China Aluminium Co.
Yancoal will be turning to local and offshore capital markets to finance the purchase, which is expected to include a share placement and a rights issue, although details have yet to be finalised. Yanzhou Coal, which has a 78 per cent stake in Yancoal Australia, said it would invest as much as $US1 billion in fresh equity in its local arm, although the details would depend on the outcome of investor meetings, which are due to be held later next month.
Even though it is listed locally, there is limited liquidity in Yancoal since after Yanzhou, trader Noble Group has a 13 per cent stake after blocking an earlier move by Yanzhou to take ful control of the company.
Under the terms of the deal with Rio, the Chinese group must also offer to acquire Japanese trader Mitsubishi Corp's one third interest in Rio's Hunter Valley mines. It will not be until around midyear that the status of this offer will be clarified.
Investment bank Morgan Stanley said it expects Rio to raise to $US1.30 its final dividend from its guidance of a dividend of at least $US1.10 a share when it releases its full year results on February 8.
"It could potentially announce a large buyback, too; however,at the current share price .... we do not think that would add significant value," the investment bank told clients Wednesday. "Reinvestment at a reasonable return or additional dividends would be most value accretive, we think.
"Unfortunately, so far the only investment of significance remains the long-dated construction of Oyu Tolgoi phase 2, which carries substantial political risks too."
This project is located in Mongolia. An expansion suffered an extended delay as the government sought to renegotiate tax treatment of the project.
Completing the sale of the coal projects to Yancoal would slash Rio's gearing, its ratio of debt to equity, to around 10 per cent, which is well below its targeted range of 20-30 per cent, opening the door to higher returns to shareholders, analysts noted when assessing the deal.
The sale of the NSW mines leaves Rio with coking coal mines producing around 12 million tonnes of coal a year.
Shares in Rio surged 3.8 per cent to close at long term high of $67.23 on the news. They rallied 4 per cent in London trading overnight Tuesday following the announcement of the sale.
0 comments
New User? Sign up