Rio Tinto shareholders will be the major beneficiaries of the company's parsimonious approach to capital expenditure, rigid attention to cutting costs and asset salesĀ and most importantly a massive rebound in the price of main commodity it produces.
The dividend far bigger than expected prize of $US1.70 goes to the shareholders.
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Why Rio Tinto wants to expand in diamonds
Bloomberg's David Stringer discusses Rio Tinto Group's plans to expand in diamond mines.
Chief executive Jean-SĆ©bastienĀ JacquesĀ proclaimed the company had, "kept our commitment to maximise cash and productivity ā¦Ā delivering $US3.6 billion in shareholder returns while maintaining a robust balance sheet. We have done what we said we would do. Rio is in great shape."
Having made plenty of costly mistakes ā which have now all but cleaned up ā Rio spent the previous couple of years developing a different culture āĀ a cash conscience, investment averse one that was all about battening down the hatches as commodities prices were weak and group debt was high.
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The company has emerged a leaner and increasingly more focused beast at a time that has coincided with stronger commodities prices. For Rio Tinto this is clearly a sweet spot.
Operating cash flow of $US8.5 billion and underlying earnings ofĀ $US5.1 billion are a better outcome than consensus.
What it does with the proceeds of this now-enormous cash-generating machine is less clear.
The company announced a smallish share buyback but investors will undoubtedly be hoping there will be more particularly when the sale of its NSW coal assets hit its coffers later this year.
Capital expenditure levels will go up from the $US3 billion spent in 2016 calendar year to around $US5 billion in 2017.
But any suggestions of big asset acquisitions seemed to be outside management's zone of interest. Jacques said the company knew which world-class assets were on the wish list but none were on the market.
Meanwhile it will be able to eke out some additional productivity gains. And the company is already reached its target debt levels and can boast a pretty attractive looking balance sheet.
But how much cash it manages to churn out in 2017 is now in the hands of the Chinese government.
Rio can thank Chinese stimulatory packages for the boost in the price of iron ore and the curtailment of coal production for the rebound in its price.
The biggest risk to the current iron ore price is that Chinese mines will re-open and bring on more supply.
And that is something that is well outside the company's control ā and in the lap of the Chinese gods.
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