Rio Tinto Sets $1 Billion Buyback -- WSJ

Mining company also plans to raise dividend; profit soars as CEO says 'resilience is key'

By Rhiannon Hoyle 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 2, 2018).

SYDNEY -- Rio Tinto PLC said it would buy back a further $1 billion in stock as it recorded a 33% rise in first-half net profit and raised its dividend by 15%, aided by recovering prices of some commodities.

The world's second-biggest miner by market value, behind BHP Billiton Ltd., on Wednesday reported a profit of $4.38 billion for the six months through June, up from a net profit of $3.31 billion a year earlier. It was the miner's most profitable first half since 2014.

Management also pledged to hand back roughly another $4 billion after taxes from the sale of assets including Australian coal mines, although said they are yet to decide upon an exact time and method.

The company, one of the world's top iron-ore suppliers, said profit before one-off items was up 12% at $4.42 billion. That was a slight miss on market expectations of about $4.6 billion, according to the median of eight analyst forecasts.

Directors said an interim dividend of $1.27 a share would be paid to shareholders, representing a payout of 50% of underlying earnings.

The mining industry has roared back to life over the past two years following a sharp drop in prices for commodities such as copper, iron ore and coal that sent companies scrambling to cut debts and boost margins.

With earnings season now under way, investors are watching for shifts in strategy that could include a more aggressive approach to growth, signs that costs are starting to eat into profits and any impact from increasing trade tensions.

Rio Tinto on Wednesday raised concerns over the threat of an escalating trade conflict between China and the U.S. That poses risks for a company that ships about 90% of its products between countries, said Chief Executive Jean-Sébastien Jacques.

"The mining industry has two key drivers: GDP growth and global trade," he told reporters.

He said Rio Tinto was yet to feel a material impact from trade disputes on sales of its commodities, but was positioned to deal with continuing economic volatility. "In these uncertain times, resilience is key," said Mr. Jacques.

Executives also cautioned the business is facing pressure from rising costs, but said this was being offset by improvements in productivity at its mines. Rio Tinto said higher energy prices cost it about $161 million in earnings, mainly because of a 28% rise in the average cost of a barrel of oil.

While focus remains on shareholder returns, the company said it continues to press ahead with some new projects, spending 34% more during the first half of 2018 versus the year-earlier period. Earlier Wednesday, the company said it approved $146 million in funding for initial work for its planned Koodaideri iron-ore mine in Western Australia, ahead of a final decision on the project later this year.

The industry's turnaround in fortunes has been underpinned by a recovery in commodity markets, which have rebounded by roughly 16% since early 2016, according to the Bloomberg Commodity Index.

Overall, commodity price changes boosted underlying earnings before interest, tax, depreciation and amortization by $604 million from a year earlier, Rio Tinto said.

The price of iron ore has steadied around $60 to $70 a metric ton -- giving Rio Tinto, one of the lowest cost producers in the world, hefty margins on the ore it ships to buyers across Asia.

Rio Tinto shipped 9% more of the steelmaking commodity from its Australian mines in the first half of 2018. It also reported a 42% jump in copper output, owing to strong production at the part-owned Escondida mine in Chile, which was disrupted by a worker strike in the same period of last year.

Rio Tinto is widely viewed as having the strongest fiscal position of any of the top global miners. Credit Suisse recently described the company as having a "balance sheet full of possibility."

While net debt at the end of June increased by 36% compared with Dec. 31, 2017, to $5.23 billion, the figure is down from more than $22 billion five years prior. The recent increase was tied in part to the payment of taxes, dividends and recent share purchases.

Rio Tinto said it would complete its latest buyback, of London-listed stock, by the end of February 2019.

Executives wouldn't give any indication of how the further $4 billion pledged to returns would be used. "All we can say is we will be back in coming months with the precise form and timing," said Chief Financial Officer Chris Lynch.

Rio Tinto has been gradually building up its capital-management program. In February, it unveiled a $1 billion purchase of London-listed stock, after announcing $4 billion of share buybacks in 2017.

It isn't the only miner pursuing buybacks. Glencore PLC last month said it would buy $1 billion in stock from investors, just days after news of a subpoena from the U.S. Department of Justice sparked a sharp slump in its share price.

Write to Rhiannon Hoyle at [e-mail]

(END) Dow Jones Newswires

August 02, 2018 02:47 ET (06:47 GMT)

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