Rio Tinto Returns to Profit, Plans Share Buyback
February 08 2017 - 12:42AM
Dow Jones News
By Rhiannon Hoyle
SYDNEY--Rio Tinto PLC (RIO.LN) returned to profit in 2016 as
prices for its commodities such as iron ore rebounded and the
company continued a multiyear campaign to cut costs and improve the
efficiency of its mines.
The Anglo-Australian miner said it would pay a full-year
dividend of US$1.70 a share, down from US$2.15 a year ago but
higher than expectations after Rio Tinto last year scrapped a
policy intended to keep investor payouts stable or rising. It also
said it would buy back shares worth up to US$500 million in
2017.
On Wednesday, Rio Tinto reported an annual net profit of US$4.62
billion, which compares to a loss of US$866 million a year earlier,
when asset write-downs and foreign-exchange and derivatives losses
weighed on its bottom line. That missed the US$5.18 billion median
of eight analyst profit forecasts.
Underlying earnings, a measure tracked by analysts that strips
out some one-off charges, rose by 12% to US$5.1 billion, it
said.
"Today's results show we have kept our commitment to maximize
cash and productivity from our world-class assets, delivering
US$3.6 billion in shareholder returns while maintaining a robust
balance sheet," said Chief Executive Jean-Sébastien Jacques, who
took over from Sam Walsh in July.
Stronger-than-expected commodity markets bolstered profits for
the world's No. 2 mining company. The price of iron ore, which
accounts for most of Rio Tinto's earnings, roughly doubled last
year from a more-than decade low because of robust demand from
China's steel industry and slowing growth in global mine
output.
Other commodities including coal and copper rose in price as
well.
In February last year, the miner abandoned its progressive
dividend policy saying it could no longer justify the commitment
when the outlook for the global economy was worsening. It said
future dividends would be more closely linked to market
conditions.
Expectations for a quick recovery in payouts, however, increased
with the rebound in commodities. Analysts expected a dividend of
US$1.395 a share for 2016.
The desire to reward investors is being balanced with an
eagerness to further reduce debt and set aside cash for new
projects.
The miner, like rivals including BHP Billiton Ltd., has worked
to strengthen its balance sheet, triggered by what became a
multiyear downturn in world commodity markets. Its net debt fell
30% to US$9.6 billion by the end of the year, reducing its gearing
- a closely watched measure of debt to equity - to 17% from 24% a
year ago.
Rio Tinto said this gearing level provides a stable foundation,
given an uncertain economic outlook. It also provides management
with flexibility to invest in new projects even if the recovery in
commodity prices loses steam, the company said.
Rio Tinto has been doubling down on its push to cut costs in the
business that has included increasing utilization of trucks and
plant, reworking deals with suppliers and a freeze on wages. The
company reduced annual operating costs by US$1.6 billion during the
year, it said.
Rio Tinto also benefited from increased production of many
commodities including iron ore, aluminum and copper. The miner last
month said it produced 6% more iron ore from its Western Australia
mining operations during the year.
-Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
February 08, 2017 01:27 ET (06:27 GMT)
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