Rio Tinto is on track for another record dividend in 2018 after its board approved the largest half year payout in the company’s history.
All up shareholders could be in for close to $A10 billion of cash via higher dividends and buybacks in the next few months.
Confirmation of the record interim dividend of $US1.27 per share up 15% from $US1.10 a year earlier.
The record payout came as Rio reported a 12% increase in underlying half year profit to $US4.4 billion from just over $3.9 billion a year ago.
The interim dividend will be complemented by a further $US1 billion of share buybacks targeted at the miner’s London listed Plc shares over the next six months.
Rio CEO J-S Jacques said his now usual short statement with the results “We have reported another strong set of results with underlying EBITDA of $9.2 billion and operating cash flow of $5.2 billion.
"In a favourable market environment, our Tier 1 assets and strong operational capability have achieved a 43 per cent EBITDA margin. Inflationary pressures are being experienced across the industry, but we have been able to offset these through our mine-to-market productivity programme.
“As a result, we continue to deliver superior shareholder returns with a record interim dividend of $2.2 billion and a $1.0 billion top-up to our existing share buy-back programme. In addition, in 2018 we have announced $5.0 billion of divestments. The board has today approved that these disposal proceeds, net of tax, will be returned to our shareholders, with the precise timing and form to be determined.
Rio said the company it had sales revenue of $US19.9 billion in the June half year, $US600 million higher than the 2017 first half, "with increased volumes of iron ore, bauxite and copper and higher prices for aluminium and copper, offsetting the impact of lower iron ore prices and the divestment of Coal & Allied.”
The shareholder returns have been fuelled by about $US5 billion of asset sales in early 2018, principally in the company’s Queensland coal division.
Separately Rio announced late yesterday that it had completed the sale of its remaining coal assets in Queensland for $US3.95 billion ($A5.33 billion).
The transactions include the sale of Rio Tinto’s interests in the Hail Creek coal mine and Valeria coal development project to Glencore for $US1.7 billion, and its interest in the Kestrel underground coal mine to a consortium comprising private equity manager EMR Capital and PT Adaro Energy Tbk for US$2.25 billion.
Estimated tax payable on the transactions is in the order of $US1 billion, Rio told the ASX.
Rio said that after tax, the remaining $US4 billion from those asset sales would be returned to shareholders in a form that had not yet been determined.
Rio’s latest round of share buybacks comes after the miner announced a $US500 million buyback in February 2017, $US1 billion of buybacks in August 2017, a massive $US2.5 billion share buyback round in September 2017 on the back of selling thermal coal assets and a further $US1 billion share buyback in February 2018.
Analysts said Rio has a major headache though in Mongolia where relations with the government over development of the Oyu Tolgoi copper mine remain strained.
Rumours continue that the Mongolian government wants to reopen negotiations around the 2009 investment agreement (for the mine) that governs the project in a bid to bring forward revenue.
Rio subsidiary developing Oyu Tolgoi, Turquoise Hill Resources, indicated on Wednesday that it was inching toward international arbitration with the Mongolian government over a disputed tax bill. The two parties were unable to resolve their differences during a 60 day negotiation period, and arbitration in London looms as the next step.
Oyu Tolgoi is forecast to be the world’s biggest copper mine when it hits its peak around 2025 – it is currently being expanded underground at a cost of $US5.3 billion.
In the meantime the existing first stage of Oyu Tolgoi delivered a 33% revenue over the past six months than in the comparable period of 2017 on the back of stronger copper prices (which though have faded by more than 10% in the past month to six weeks).
Rio also confirmed on Wednesday that its next major iron ore mine had moved a significant step closer, with the company announcing a $146 million investment to undertake early works at its Koodaideri iron ore project in the Pilbara region of Western Australia.
Rio shares rose 0.8% yesterday to $81.85. Shares in its rival, BHP, jumped 0.6% to a new four and a half year record close of $35.10. The rises came on a day when the wider market sagged into the red late in the session after struggling all day.
As usual iron ore was the main driver of Rio’s profits, contributing nearly 70% of the total, but earnings in the company’s aluminium and copper businesses also rose.
Rio could announce further cash returns if it completes the sale of its 40% interest in the giant Grasberg copper mine for the reported $US3.5 billion.
This is on top of the $US3.95 billion for the Queensland coal mines.
Including Grasberg, Rio has raised more $US8 billion from disposals in 2018.
Mr Jacques said Rio planned to keep net debt at around $US5 billion.
