Join our community of smart investors

Rio ups its buyback plans

The Anglo-Australian miner is to retire a further $1bn of its shares in 2017
August 3, 2017

Half-year earnings for Rio Tinto (RIO) failed to match consensus analyst forecasts, but income-seeking shareholders are unlikely to be disappointed. In addition to the largest interim dividend in its history, the diversified miner used its interim figures to announce a further $1bn (£758m) of planned share buybacks for 2017, equivalent to an extra 56¢ per share.

IC TIP: Buy at 3444p

Rio retired around $300m of its equity in the period to June, but the revised programme will see a further $1.2bn of stock acquired in the open market before 2018. In theory, Rio will do this whenever the shares show signs of weakness, though execution is often tougher in practice. All of this financial engineering has been made possible thanks to a doubling in operating cash flow to $6.3bn, early completion of a $2bn cost savings drive, and a $2.5bn reduction in gross debt.

All three major growth projects – Oyu Tolgoi, Amrun and Silvergrass – are reportedly on track, though spending will need to step up in the second half of the year if this is to be maintained. Still growth in copper and bauxite output is a smart long-term goal, if only to smooth the volatility of iron ore prices. At $67.80 per dry metric tonne Steel’s key ingredient sold for 42 per cent higher than it did in the first half of 2016, contributing to 71 per cent of Rio’s underlying profits before exploration and net interest charges.

Analysts at Investec expect statutory pre-tax profit $12.3bn and EPS of 464¢ for 2017, up from $6.4bn and 266¢ last year.

RIO TINTO (RIO)   
ORD PRICE:3,444pMARKET VALUE:£63.9bn*
TOUCH:3,444.5-3,445p12-MONTH HIGH:3,719pLOW: 2,254p
DIVIDEND YIELD:5.2%PE RATIO:13
NET ASSET VALUE:2,361¢^NET DEBT:16%
Half-year toTurnover Pre-taxEarnings perDividend
30 Jun($bn) profit ($bn)share (¢) per share (¢)
201615.52.1095.345
201719.34.96184110
% change+25+136+93+144
Ex-div:10 Aug   
Payment:21 Sep   
£1=$1.32. *Includes UK and Australian listed shares.