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 rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
August 02, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Bhp (LSE:BHP)
Historical Stock Chart
From Apr 2024 to May 2024
Bhp (LSE:BHP)
Historical Stock Chart
From May 2023 to May 2024