Record $9bn dividend for Rio Tinto investors

Huge profits driven by a new record iron ore price have been largely passed down to shareholders, as Rio Tinto (RIO) has continued its big week by announcing an interim and special dividend of 376¢ (404p) and 185¢, respectively. 

The pay-out was well ahead of analyst expectations, which was for a 493¢ interim dividend and 37¢ special dividend, according to VUMA. 

The major miner also announced post-close on Tuesday it would spend $2.4bn on building the Jadar lithium project in Serbia, which would supply European carmakers looking for local supply. There are no operating lithium mines in Europe at the moment, and at forecast production of 58,000 tonnes of  lithium carbonate a year by 2029, Jadar would be the biggest player by far. 

Rio Tinto’s underlying cash profit for the six months to 30 June was $21bn, more than double last year’s figure, as sales climbed 71 per cent to $33bn. This was principally off the back of iron ore climbing over $220 a tonne but copper and aluminium prices also helped profits soar. Each mining division saw its underlying cash profit at least double, led by copper climbing $686m last year to $2bn. 

These heady numbers came thanks to government stimulus driving a “significant spike” in the prices of most of the miner’s products, said chief executive Jakob Stausholm. 

“This enabled us, despite operational challenges, to deliver record financial results,” he said. 

The operational challenges included heavy weather that knocked off 3m tonnes of iron ore output in the Pilbara and contributed to the unit cost climbing from $14.50 a tonne to $17.90 a tonne this year, alongside the stronger Australian dollar. 

Earlier in the week, the Financial Times reported the Financial Conduct Authority (FCA) was investigating Rio Tinto over its disclosures around the $6.75bn Oyu Tolgoi underground project. The company said it had complied with the law over updating shareholders on the troubled project, which has been delayed and needed key design work to be re-done well into construction. 

Stausholm, who took over as chief executive in the wake of the Juukan Gorge resting sites destruction last year, said the new leadership team had “identified what we need to do to make Rio Tinto a better company for the long term” and would focus on having “strong and positive relationships wherever we do business”. 

On top of repairing the Juukan Gorge resting sites, Rio Tinto still has negotiations to complete with traditional owners at the Resolution Copper project in Arizona and the Winu copper project in Western Australia. 

Cold, hard cash being handed back to shareholders is undeniable. This record interim pay-out accompanied with a shift to net cash shows just how big the impact of this iron ore bull market has been. We shifted the miner from buy to hold last year based on its governance failings; now the question is whether the company has hit the peak or will the returns continue? Based on iron ore price forecasts, we think the next six months will prove an extended peak before investor pay-outs come back to earth next year. Hold. 

Last IC View: Hold, 6,116p, 20 Jul 2021