No wonder Rio Tinto shares perked up 30c right at the end of trading yesterday at around 4 pm.
That was almost an hour before the 2010 results were issued at 4.57 pm and although there had been a fair bit of speculation that the mining giant would earn around $US14 billion (which it did), the shares had been easier for most of trading.
We then had a small run up of 30c to a close of $88.68, after being down a few cents in earlier trading as ‘the word’ spread about the result.
And Rio delivered, as forecast, a higher profit, some capital management, and a boost to both the final dividend and the forecast interim for this year.
It reported 2010 underlying earnings of $US13,987 million and net earnings of $US14,324 million were $US7,689 million above and $US9,452 million above the comparable measures for 2009.
As impressive as they were the full year figure was still under the 2008 peak of $US14.8 billion.
Underscoring the importance of the company’s West Australian iron ore business, the overwhelming majority of the underlying profit was generated by the export mines in the Pilbara at Hamersley and Robe River.
Rio’s accounts show that Hamersley had net earnings of $US7.911 billion, more than double the $US3.28 billion earned in 2009.
And Robe River lifted its net earnings to $US1.711 billion from $US718 million).
All up iron ore earned $US9.622 billion of the underlying profit of more than $US13.98 billion, or nearly 70%.
Net earnings at $US14.324 billion, matched analysts’ forecasts and were 194% above the net figure for 2009 of $US4.872 billion.
Rio further said that it would return $US5 billion to shareholders through a share buyback by the end of 2012 and increased its final dividend 20% (to 63 USc a share) above its earlier commitment (of 45 USc a share), topping market expectations.
And it signalled that shareholders can expect an interim payout this financial year of 54 US share.
On the dividend increase Rio explained:
"On announcing the $15.2 billion rights issues on 5 June 2009, the Group stated that the total cash dividend for the 2010 financial year would be at least equal to the total cash dividend payment for 2008 of $1.75 billion, equivalent to US 90 cents per share.
"In August 2010, the Group declared an interim dividend of US 45 cents per share which was paid in September 2010.
"The final dividend of US 63 cents per share increases total dividends for 2010 to 108 US cents per share, 20 per cent higher than the previous commitment of 90 US cents per share. The total dividend for 2010 of US1.08 per share will form the basis of a progressive dividend policy.
"The aim of Rio Tinto’s progressive dividend policy is to increase the US dollar value of ordinary dividends over time.
"From 2011, the Group will continue with its previous dividend practice of paying an interim dividend that is half the prior year’s full year dividend. Therefore, the 2011 interim dividend is expected to be US 54 cents.
It said that commitment would still allow it to take advantage of future growth opportunities that might arise.
For the six months to December 31, underlying earnings before one-offs rose to $US8.22 billion, from $US3.73 billion a year earlier.
The company said in commentary that the big profit boost came from higher prices.
"The effect of price movements on all major commodities in 2010 was to increase underlying earnings by $9,505 million compared with 2009," Rio directors said yesterday.
"Prices improved for nearly all of Rio Tinto’s major commodities: copper prices were up 47 per cent, molybdenum prices were up 45 per cent, gold prices were up 26 per cent and aluminium prices were 31 per cent higher than 2009.
"Demand and prices for diamonds and minerals improved significantly as the worldwide economy emerged from the global financial recession.
"During 2010, iron ore pricing moved to quarterly contracts, reflecting the structural shift away from annual benchmark pricing.
"First quarter iron ore prices (from 1 January 2011) are based on the average indexed price from 1 September to 30 November 2010.
"2010 saw continuing strength in the seaborne market for Australian coal.
"Demand for thermal coal continued to be robust from South Korea, India, Taiwan and China. Global steel demand improved in all markets throughout the year and led to strong demand for semi-soft coking coal.
"The market for premium quality hard coking coal remained steady in 2010.
"There was significant movement in the US dollar in 2010 relative to the currencies in which Rio Tinto incurs the majority of its costs.
"Compared with 2009, on average, the US dollar weakened by 16 per cent against the Australian dollar and by ten per cent against the Canadian dollar.
The effect of all currency movements was to decrease underlying earnings relative to 2009 by $1,171 million, " the company said
(So the actual result before currency changes was closer to $US16 billion).
The company said higher sales volumes "were primarily generated from the expanded iron ore operations in the Pilbara region of Western Australia running at above nameplate capacity and an increased proportion of higher margin pellet sales at IOC.
"The Aluminium group benefited from higher sales of value ad
