Rio Tinto is paying shareholders a record interim dividend

Prashant Mehra
(Australian Associated Press)

Rio Tinto is paying shareholders a record interim dividend after its underlying half year profit more than doubled due to stronger commodity prices.

The mining giant will deliver $US1.10 a share, or about $US2 billion in total, and launched an additional buyback of $US1 billion of Rio Tinto’s London-listed shares that will be completed this year.

The unexpectedly strong returns come nearly 18 months after the mining giant slashed shareholder payouts following an annual loss in 2015.

The higher returns also reflect the reluctance among big miners to splash money on new mines or businesses.

Rio’s net profit in the six months to June nearly rose 93 per cent to $US3.3 billion, helped by higher iron ore and coal prices.

Underlying earnings, which exclude impairments and exchange losses, more than doubled to $US3.9 billion, but were slightly weaker than market expectations.

Chief executive Jean-Sebastien Jacques said the results were proof the company’s focus on capital discipline and shareholder returns is working.

“These are a strong set of results. We believe we can do much more and we have no intention of slowing down,” he told reporters.

Prices for iron ore, Rio’s primary revenue earner, peaked at nearly $US95 a tonne in February, but have moderated since amid concerns of oversupply and a slowing Chinese economy.

The steel making ingredient still trades around $US73 a tonne.

Rio’s underlying earnings from iron ore increased 87 per cent to $US3.3 billion, while earnings from its energy division increased almost eight-fold to $US652 million.

Aluminium earnings doubled to $US759 million.

Mr Jacques said he remains confident about China in the short term, with early signs for 2018 looking positive.

The company will now focus on boosting productivity and working its top assets harder, he said.

“We are now shifting gear to focus on the untapped value from our productivity programme and continue to strengthen our portfolio to build higher returns for the future,” Mr Jacques said.

Rio has maintained its capital expenditure forecast at around $US5 billion in 2017, and $US5.5 billion in each of 2018 and 2019.

It expects to generate a total of $US5 billion in additional cash flow from productivity improvements between 2017 to 2021.

Chief financial officer Chris Lynch declined to commit to higher shareholder payouts in the future, and said a decision on the proceeds from its recent $US2.7 billion sale of NSW coal operations to Yancoal will be taken at the time of Rio’s full year results in February.

The strong results and higher payout failed to cheer investors, with Rio Tinto’s London-listed shares down 1.7 per cent in early trading.

RIO TINTO PROFIT SOARS ON HIGHER PRICES

* Half year net profit up 93pct to $US3.3b

* Revenue up 25pct to $US19.3b

* Interim dividend up 65 US cents to $US1.10 per share

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