Rio Tinto Returns to Profit, Plans Share Buyback

   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 [e-mail]

(END) Dow Jones Newswires

February 08, 2017 01:27 ET (06:27 GMT)

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