Rio Tinto has reported bumper annual results and said it would pay a dividend of almost $ 8bn to its investors after cashing in on surging prices for its critical commodities.
Since the onset of the coronavirus pandemic, the mining sector has emerged as the dividend-paying powerhouse of the London stock market, returning huge sums of cash from record raw material prices. This has made it a go-to choice for investors seeking income and real yields at a time of rising inflation.
BHP, the world’s biggest miner, recently reported strong results and declared a record $ 7.6bn half-year dividend, while Glencore announced a $ 4bn payout and Chile-focused miner Antofagasta declared a record dividend of $ 1.4bn on Tuesday.
However, they have been eclipsed by Rio, a FTSE 100 company that makes most of its money from producing steelmaking ingredient iron ore in Western Australia.
The company, which is listed in London and Sydney, said it would pay a final dividend of $ 4.17 a share plus a special dividend of 62 cents, worth a total of $ 7.7bn.
On top of the cash returned following half-year results in July, Rio shareholders will receive a total of $ 16.8bn for the 2021 financial year. That is the second-biggest payout in the history of the FTSE 100.
A large chunk of Rio’s dividend bonanza will head straight to China, the most important market for its products. The company’s largest shareholder is state-owned aluminum producer Chinalco. It will receive just over $ 2.5bn through its near 15 per cent holding in the miner.
“The recovery of the global economy, driven by industrial production, resulted in significant price strength for our major commodities, which we were able to capture, achieving record financial results with free cash flow of $ 17.7bn,” said Rio chief executive Jakob Stausholm.
He was speaking after Rio announced earnings before interest, tax, depreciation and amortization – the measure tracked by analysts – of $ 37.7bn for the year to December, up 58 per cent from a year ago, on revenue of $ 63.5bn. Rio ended the year with a net cash position of $ 1.6bn.
Iron ore, which hit a record of more than $ 230 a tonne last year, was the main driver of profits, with underlying ebitda of $ 27.6bn, up 46 per cent.
However, there was also a resurgent performance from Rio’s aluminum division, which saw double earnings on the back of soaring prices for the metal used in everything from beer cans to cars. Profits from mining copper also jumped.
“Rio Tinto remains a company in a solid financial shape, and although facing higher costs like the rest of the industry,” said Tyler Broda, an analyst at RBC Capital Markets.
Rio said it expected the cost of production at its iron ore mines in Australia would rise to between $ 19.50 and $ 21 a tonne this year, up from $ 18.60 in 2021, owing to labor and cost inflation.
Stausholm took the helm of Rio just over a year ago and has worked to restore the miner’s reputation, which was left in the tatters after it destroyed an ancient Aboriginal site in 2020.
He is also trying to make Rio less hierarchical and a more open-minded company. Stausholm recently published a damning workplace report that revealed shocking levels of bullying, discrimination and abuse at the 149-year-old mining group in an effort to change its culture.
Speaking on the phone from Australia, Stausholm told the Financial Times that he was following the situation in Ukraine “very closely” and looking at how it could impact its operations, particularly in aluminum, where Russian producer Rusal is a partner.
“The most likely disruption to us is probably aluminum. But we have had this before in 2018. . . and we were able to navigate that, ”he said, referring to the US sanctions that were imposed on Rusal four years ago, sending the aluminum market into a tailspin.
Asked about his plans for Simandou, a giant untapped deposit of iron ore that is one of the richest prizes in mining, Stausholm said Rio was “stepping up” discussions with the government of Guinea.
“There are intense discussions between the two consortium and the government. I hope that we can soon define what the project will look like and probably include some kind of schedule. ” Rio owns half the rights to Simandou; the rest is controlled by a China-backed consortium.
Stausholm said he had a “very good” relationship with Rio’s incoming chair Dominic Barton, the former head of McKinsey. “I think we share the same values and beliefs in the kind of culture we want in the company,” he said.
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