Rio Tinto hands out record dividend as profits boom

A bruising recent few months that left Rio Tinto (RIO) faced with yet more challenges, including fixing a toxic internal environment and rescuing the cancelled Jadar lithium project in Serbia, has still ended with record profits and dividends, thanks to the strength of global commodities prices. 

The major miner has joined BHP (BHP) and Antofagasta (ANTO) in offering shareholders even more than forecast, with a final dividend of 417¢ (307p) and a special payout of 62¢, which was slightly ahead of company-compiled consensus analyst estimates. 

Chief executive Jakob Stausholm said the company had been able to “capture” the global economic recovery, driving the surge in profits. Rio hit free cash flow of $17.7bn, up 90 per cent on 2020. That was achieved even with capital expenditure climbing. The company has now moved back to a net cash position, although the dividend payments will soon see it return to net debt status. The iron ore division led the way as usual, registering a 46 per cent increase in underlying cash profit to $27.6bn, while the smaller aluminium and copper units saw a doubling in underlying cash profits on stronger prices. 

Headwinds were evident in Rio’s cost guidance for 2022, however. The miner sees the Pilbara iron ore cash cost climbing from $18.60 a tonne in 2021 to $19.50-$21 a tonne this year, while copper costs will surge from 82¢ per pound (lb) to 130¢-150¢. 

Earlier this month, the miner promised major reforms to its working culture after a report found widespread misogyny, racism and bullying within its ranks. Rio boss Stausholm told analysts that the company was becoming "less hierarchical" in response and would focus on "empowering" workers. He also used the 2021 results presentation to outline an update to the company’s carbon emission reduction plan, which includes a 15 per cent cut to operational emissions within three years. 

This is certainly a high point for the mining industry and Rio, with earnings and payouts forecast to come down this year as costs bite. Questions over Rio’s expansion options make us prefer BHP in the long term. Hold. 

Last IC View: Hold, 6,015p, 28 Jul 2021