Rio Tinto Promises Growth as Shareholders Reap Rewards
07 Febbraio 2018 - 01:16PM
Dow Jones News
By Rhiannon Hoyle
SYDNEY-- Rio Tinto PLC said it was hunting for acquisitions
including in new commodities such as lithium, as it handed more
cash to shareholders through an increased buyback program and
record annual dividend.
The remarks by Chief Executive Jean-Sebastien Jacques--while
unveiling a 90% annual profit rise--show that resources companies
are rethinking their strategies after years of focusing on cost
cuts in the wake of a downturn in commodity prices that began
around 2011.
Rio Tinto reported a net profit of US$8.76 billion for 2017, up
from US$4.62 billion a year earlier, as prices of coal, copper,
aluminum and iron ore rebounded. The company promised a full-year
dividend of US$2.90 a share, up from US$1.70 in 2016, and said it
would buy US$1 billion in shares by the end of 2018. That is in
addition to the US$1 billion share buyback announced midyear and a
US$2.5 billion buyback linked to the sale of its Coal & Allied
business.
The results kick off a string of earnings reports by the world's
biggest miners that is expected to show a sharp rise in cash flow,
raising questions about how they plan to spend the windfall. BHP
Billiton Ltd., which is due to report a half-year profit on Feb.
20, is coming under pressure from activist investor Elliott
Management Corp. to sell assets, delay risky projects and rethink
its dual-listed corporate structure to improve shareholder
value.
Investors are nervous about the mining industry's record in
doing big deals. Rio Tinto's forays in Guinea and Mozambique led to
hefty write-downs and investigations by regulators in many
countries including the U.S. over the miner's disclosures and
financial reporting.
At the same time, investors worry that mining companies have
been slow to react to shifts in demand for commodities as China's
economy slows and the focus turns to new drivers of demand, such as
electric vehicles.
Mr. Jacques said Rio Tinto has "a growth agenda" and is
screening opportunities, including in commodities it doesn't
already produce.
Rival Glencore PLC, led by mining-deal veteran Ivan Glasenberg,
has so far led the charge on acquisitions, scooping up new
businesses including coal and zinc operations.
"We are very well positioned to take advantage of any kind of
opportunities," Rio Tinto's Mr. Jacques said Wednesday.
Lithium, used in rechargeable batteries, is among the
commodities on Rio Tinto's radar, said Chief Financial Officer
Chris Lynch.
A rally in metals markets has been gathering steam as some of
the world's largest countries and auto makers ramp up pledges to
phase out diesel cars. Analysts project electric vehicles will play
a major role for commodities such as lithium and cobalt, also used
in batteries, and push up prices of more widely used metals
including copper and nickel.
Rio Tinto already owns one lithium deposit in Serbia that is yet
to be developed.
The challenge facing Rio Tinto, Mr. Lynch said in an interview,
was getting an asset for the right price. "You are not going to
steal assets in this day and age," he said.
Global miners are broadly expected to beef up shareholder
returns after emerging from a painful downturn that sparked
widespread cost-cutting.
Rio Tinto said it had boosted cash flow by US$400 million from
improved productivity, despite grappling with higher raw-material
costs. Management hit a target to strip out US$2 billion in cash
costs midyear, six months earlier than planned.
Rio Tinto said net debt reduced by 60% to US$3.85 billion, its
lowest level in a decade. That took its gearing--a measure of a
company's debt relative to equity--to 7% from 17% at the end of
2016.
Mr. Jacques said the miner was upbeat on the world economy,
despite recent volatility in global markets.
He said China's economy looked good in the medium- to long-term
and highlighted robust growth across most major markets. The
International Monetary Fund estimates the world's seven biggest
economies--the U.S., China, Germany, Japan, France, the U.K. and
India--each grew more than 1.5% in 2017. They appear poised to
strengthen further in 2018.
"Today, we are in a good space," Mr. Jacques said. "Mining at
the end of the day is a GDP-driven industry."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
February 07, 2018 07:01 ET (12:01 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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