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Rio lays down a marker

RESULTS: Under new chief executive Sam Walsh, Rio has exceeded targeted operational and capital expenditure cuts for 2013, while driving cash flows.
February 13, 2014

Anglo Australian mining giant Rio Tinto (RIO) trumped consensus forecasts and laid down a marker for the industry by exceeding targeted cuts in operational and capital expenditure - paving the way for a 15 per cent hike in the full-year dividend.

IC TIP: Hold at 3462p

Under new chief executive Sam Walsh, Rio has reduced capital spending by 26 per cent to $12.9bn (£7.8bn), cut cash operating costs by $2.3bn and pared back net debt to $18.1bn - an 18 per cent fall from the June half year. Management confirmed that Rio would be in a position to consider share buy-backs or other capital returns when its net debt falls to around $15bn - conceivably by the 2014 half-year. Rio's largesse towards shareholders was facilitated by the completion of the phase one Pilbara expansion in Western Australia, together with a buoyant iron ore pricing environment. These factors combined to drive operating cash flows by over a fifth to $20.1bn.

Rio was forced to book impairments on its Oyu Tolgoi mine in Mongolia and the closure of its Gove alumina refinery. But the aggregate charge was half that of last year's disastrous $14.7bn write-down on its Alcan aluminium business and Mozambique coal assets. Excluding one-off charges, Rio was still able to drive up its underlying earnings 10 per cent to $10.2bn.

RIO TINTO (RIO)
ORD PRICE:3,462pMARKET VALUE:£65bn
TOUCH:3,460-3,463p12-MONTH HIGH:3,838pLOW: 2,580p
DIVIDEND YIELD:3.3%PE RATIO:29
NET ASSET VALUE:2,482¢*NET DEBT:34%

Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
200944.07.930245.0
201055.220.5731108
201160.513.2304145
2012 (restated)51.0-2.4-163167
201351.23.5198192
% change+0--+15

Ex-div: 5 Mar

Payment: 10 Apr

*Includes intangible assets of $6.8bn, or 366¢ a share £1=$1.66

NAV and market value reflect both UK and Australian listed shares