Rio Tinto reverses loss to post surge into profit

World's second-biggest miner reaps rewards of restructuring push, gains from higher iron ore prices and growing demand from China.

A tipper truck climbs out of a Rio Tinto iron ore mine at Tom Price, about 1,300km north of Perth, Australia. Chinese demand has helped to boost the miner's earnings. Tim Wimborne / Reuters

The global miner Rio Tinto bounced back into annual profit in 2016.

The world’s second-biggest miner will also will pay a much higher dividend than expected and buy back US$500 million of shares after the world’s second-biggest mining company

Rio reported an annual net profit of US$4.62 billion for the year to December 31, compared with a $866 million net loss in the previous financial year when key metals prices plunged and Chinese demand slowed, London-based Rio said on Wednesday.

While the dividend fell 21 per cent to $1.70 a share, reflecting a new policy aligning the payout to earnings, that still exceeded the average estimate of $1.36 in the Bloomberg survey and the company’s minimum payout of $1.10 cents. Rio will purchase UK-listed shares throughout the course of this year.

Iron ore, Rio’s main profit driver, surged 81 per cent last year as Chinese stimulus supported local steel output, leading to better demand for overseas ore.

“Our value over volume approach, coupled with a robust balance sheet and world-class assets, places us in a strong position to deliver superior shareholder returns through the cycle,” said the chief executive Jean Sebastien Jacques.

Capital expenditure expected to be around $5bn in 2017 and around $5.5bn in each of 2018 and 2019, Rio said.

Rio stock is up 9 per cent this year and reached an almost four-year high in late January. The Sydney-traded shares rose 0.8 per cent to A$65.69 by the close of trade on Wednesday.

There are signs that Chinese customers are well stocked. Inventories at Chinese ports reached a record last week and shipments from Australia’s Port Hedland hit an all-time high for the month of January.

Mr Jacques is leading the 144-year-old mining giant’s retreat from coal as part of a broader plan to slim Rio’s asset base that has resulted in $7.7bn of disposals since 2013.

Last month, he agreed to sell most of the company’s thermal coal assets to a firm controlled by China’s Yanzhou Coal Mining for $2.45bn.

Rio’s net debt fell 30 per cent to was $9.6bn at the end of last year. The disposal could help reduce borrowings to $3.9bn by the end of 2017, Deutsche Bank has said.

* Agencies

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