RIO Rio Tinto Plc

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 (February 28, 2019).

SYDNEY -- Rio Tinto PLC pledged record returns to shareholders as the mining industry's cash bonanza continues, even as executives signal concern over the global outlook.

Rio Tinto, the world's second-biggest mining company by market value, said Wednesday annual capital returns would total $13.5 billion for 2018, including a final dividend valued at $3.1 billion and a special dividend amounting to $4.0 billion.

That was underpinned by a 56% surge in annual net profit, mostly linked to the sale of operations, including a $3.5 billion stake in an Indonesian copper mine.

Rio Tinto, which handed investors a handsome $9.7 billion in 2017, joins a parade of global mining companies delivering cash to shareholders as they reap the benefits of asset sales and strong balance sheets, repaired after a commodity slump a few years back. The companies have also been reluctant to substantially increase spending on growth and particularly acquisitions, even as profits rise, after writing off megadeals struck at the peak of the previous boom that later soured.

"We said we would reward our shareholders," said Rio Tinto Chief Executive Jean-Sébastien Jacques.

For investors, this earnings season has offered a generous bounty of often record payouts.

BHP Group Ltd., the world's biggest mining company by value, pledged $13.2 billion to investors for the first half of its fiscal year, via share buybacks and dividends, funded largely by the sale of its U.S. shale business, mostly to BP PLC. The Melbourne, Australia-based company said as it released its midyear results it would pay $2.8 billion as an interim dividend.

Glencore PLC outlined plans for a new $2 billion share buyback, which it signaled it could increase later in the year. It said strong cash generation underpinned $5.2 billion in shareholder returns and buybacks for 2018.

Anglo American PLC's payout, while steady, was bigger than the market had expected. South32 Ltd. -- the metals- and coal-mining company spun out of BHP in 2015 -- raised its midyear payout and said it would hand out another special dividend.

Rio Tinto, which has also been buying back shares, Wednesday reported a net profit of $13.64 billion for 2018, up from $8.76 billion a year earlier.

The company, one of the world's top iron-ore suppliers, said profit before one-off items was up 2% at $8.81 billion, underpinned by steady prices for commodities. That exceeded a consensus expectation for an underlying profit of $8.53 billion, based on the median of seven analyst forecasts compiled by The Wall Street Journal.

While Rio Tinto, which has benefited from a jump in iron-ore prices early in 2019, was broadly upbeat on the commodities it sells, Mr. Jacques said the economic and geopolitical backdrop gave reasons to be cautious.

"The risk of a trade war is still there," he told reporters. "It is a very volatile environment."

BHP's chief executive, Andrew Mackenzie, this month also sounded a warning over the U.S.-China trade conflict and raised concerns about how that might affect growth, particularly in the U.S., this year.

Mining companies insist the trade dispute -- which has included tariffs on some commodities -- hasn't yet hurt sales, although they say it has made the outlook for prices more unpredictable

Still, "I am the optimist in the room," said Rio Tinto's Mr. Jacques. "I believe common sense will prevail at some stage."

A fine balancing act is also emerging as companies look to satisfy yield-hungry investors and set their businesses up for another stage of growth.

Though gold-mining giants are pursuing a new wave of megadeals, most of the world's major diversified mining companies have been adhering to strict spending rules, pleasing investors.

"I think the market would be concerned if there's any sign that discipline will be abandoned," said Prasad Patkar, head of qualitative investments at Platypus Asset Management, in a recent interview.

However, others said companies might be sacrificing opportunities for valuable growth. It can take five to 10 years for new mines to start up, so companies risk being unable to capitalize on any sudden rally in commodity prices.

"We are trying to just find the right balance between our balance sheet, the compelling growth options we have and further returns to our shareholders," Rio Tinto Chief Financial Officer Jakob Stausholm said in an interview.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

February 28, 2019 02:47 ET (07:47 GMT)

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