Tuesday, 28 March, 2017

Rio Tinto plc 17.1% Potential Upside Indicated by JP Morgan Cazenove

Glencore Mt Owen coal mine Australia Investors eye rewards in 2017
Juana Turner | 09 February, 2017, 00:37

Mining giant Rio Tinto says it is has no concerns about China's economy as a recovery in iron ore prices and cost cutting drives an improvement in its earnings.

Full year net profit came in at $5.1 billion, the company said, up from a loss of $866 million in 2015 and ahead of analysts' forecasts of $4.87 billion.

The company said net debt decreased to US$9.6 billion in 2016 from $US13.8 billion the prior year.

Rio Tinto has ridden the commodities wave over the a year ago, with its share price nearly doubling.

Copper asset valuations are still too high, and the diamond industry is "very attractive", CEO Jean Sebastien Jacques says in a Bloomberg TV interview.

Other commodities including coal and copper rose in price as well.

The earnings before interest, tax, depreciation and amortisation margin improved to 38% from 34% due to productivity improvements.

Stronger-than-expected commodity markets bolstered profits for the world's No. 2 mining company.

The most important takeaway is the $3.6 billion cash return to shareholders announced by the company today, including $500 million in buybacks and $3.1 billion in dividends ($1.70 per share). In the previous year they have lagged other mining companies such as Glencore PLC (LON:GLEN) (LSE:GLEN.L), Anglo American plc (LON:AAL) (LSE:AAL.L), Antofagasta plc (LON:ANTO) (LSE:ANTO.L) and BHP Billiton plc (LON:BLT) (LSE:BLT.L).

Rio lowered its full-year dividend to $1.70 a share from $2.15, but it was above analyst expectations of $1.36 per share.

The company said its board expects total cash returns to shareholders over the longer term to be in a range of 40 to 60 per cent of underlying earnings in aggregate through the cycle. The miner last month said it produced 6% more iron ore from its Western Australia mining operations during the year.

"Under nearly any situation, they're going to generate a significant amount of cash again this year and so there's going to be increased pressure on them to do something with that cashflow", Richard Knights, a mining analyst at Liberum Capital Ltd.in London, said by phone. "At the same time, we strengthened the portfolio and advanced our high-value growth projects as we look to the future".

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