Posted on 18 Feb 2021
Rio Tinto on Wednesday reported its best annual earnings since 2011 and declared a record dividend payout, the second major producer to return windfalls from sky-high iron ore prices to investors.
Strong demand from Chinese investment in infrastructure have sent prices for the steel-making raw material to multi-year highs and both Rio and BHP have surprised investors with fatter-than-expected returns.
"We have earned a lot of money last year," said CEO Jakob Stausholm, who moved into the top job last month.
"But we have also done a lot of deleveraging in the year and we are down to now having less than US$1 billion of net debt. So it's difficult to argue that we should hold back on dividends," Stausholm told a media briefing.
Underlying earnings rose to US$12.45 billion from US$10.37 billion a year earlier, beating analysts' estimates of US$12.02 billion, Refinitiv IBES data showed.
China's infrastructure focus pushed its imports of iron ore to a record high in 2020 and spurred a more than 50% jump in prices, while miners are now set to benefit from an expected rebound in the global economy from the rollout of Covid-19 vaccines.
Brenton Saunders, a portfolio manager at Pendal Group, said it was a solid result with a big beat on dividend expectations like peer BHP.
"Let's not kid ourselves, the biggest part of this result is still strong commodity prices," Saunders said.
Costs are in check and they are paying out a lot of what they are making, compared to the peak of the last commodity cycle, he added.
Rio half-year dividend plus special dividend was US$6.5 billion compared to BHP's US$5.1 billion payout. Peer Fortescue Metals Group Ltd reports on Thursday.
The global miner declared a record final dividend of US$3.09 per share, up from US$2.31 in 2019, and announced a special dividend payout of 93 cents a share.
The peak of the last commodity cycle a decade ago was marked by cost overruns at big global miners and overpayments for poor assets that were later followed by multi-billion dollar writedowns.
Rio must still mend ties with the Aboriginal group whose sacred rockshelters it destroyed for an iron ore mine last year, and there is no timeline for that, said Stausholm, who visited Juukan Gorge last week.
The miner has excised 54 million dry tonnes of iron ore from its reserves after a review of important Aboriginal sites.
Stausholm also did not rule out board changes at its London annual general meeting in April after investors were disappointed with the findings of a board-led review into the disaster.
Chairman Simon Thompson commissioned the review and independent director Michael L'Estrange delivered it.
"In terms of who will stand for election at the AGM, that will come out in early March so I can’t comment on that at this time," Stausholm said.
To help burnish its green credentials, Rio has also set new scope 3 targets to lower the emissions of its customers, primarily the steel industry, which it said it would put to an advisory vote at its 2022 AGM.
The board's remuneration committee has added climate change to short-term incentive plans.
Source:The Edge
