Rio Tinto will buy back $5bn of shares, underlining the extent of its cash accumulation after a year when soaring iron ore prices allowed it to slash its debt and more than double its profits.
The multinational mining company boosted its 2010 dividend by 20 per cent to $1.08 per share and said it would buy back $5bn in shares before the end of 2012. These rewards come less than two years after it asked investors for a $15.2bn cash infusion through its 2009 rights issue.
Its dramatic change in fortune derives from the market prices of iron ore, copper, coal, and aluminium. Like peer miners it is enjoying what one analyst called "Boom 2.0", a sharp resurgence of China-led demand for the raw materials of industrialisation.
Higher commodities prices alone added $9.5bn to underlying earnings which more than doubled from $6.3bn to $14bn.
Iron ore once again delivered the majority of profits, as Rio continues an extraordinarily lucrative business of digging up the steelmaking ore from its mines in the Australian desert and shipping it north to China. The iron ore division accounted for $16.6bn out of a total $26.6bn of group earnings before interest taxation depreciation and amortisation. Ebitda rose 84 per cent compared to 2009.
Profits from aluminium did not compare to iron ore. But a significant turnaround occurred at the formerly loss-making division previously known as Alcan, the Canadian aluminium giant that Rio bought for $38bn in 2007. Alcan's earnings before interest taxation depreciation and amortisation jumped from $594m to $2.4bn.
Once again the pricing effect accounted for most of the gain. Aluminium prices rose 31 per cent over the course of 2010. The metal has taken on a new use as a financial investment that some say is dangerous because its value is tied to low interest rates and the expectation that prices will continue to rise.
Operational cash flows in 2010 rose 70 per cent to $23.5bn.
The wave of cash flooding the mining industry has led many analysts to expect share buybacks from BHP Billiton, the other top Anglo-Australian miner that reports interim results next week. But buybacks at Rio were less widely expected, in part because the company has agreed a $3.9bn acquisition of Riversdale Mining, which owns coal properties in Mozambique.
It is also funding a vast mine-building programme, committing $12bn to new projects since the start of 2010.
But Rio's balance sheet on Thursday indicated a flexibility to pursue several multi-billion-dollar outlays simultaneously. Its net debt, which at the end of 2008 stood at $38.6bn, was $4.3bn at the end of 2010. That compares to $18.9bn last year.
"Rio Tinto is reinvigorated, running strongly, and benefiting from favourable markets," said Tom Albanese, chief executive, in a statement. He noted that the removal of government stimulus spending on infrastructure this year has "the potential to generate both volatility and substantial swings in commodity prices".
The company expects capital expenditure of $13bn in 2011 including construction costs of Oyu Tolgoi, the world-class copper mine that it is building in Mongolia.
Rio's pre-tax profits rose 161 per cent from $7.9bn to $20.6bn, on gross revenues that rose 36 per cent to $60bn. Last year sales to China accounted for 28 per cent of Rio's revenues, a rise from 2009.
The company's bid for Riversdale, which is tightly held by companies including Tata Steel and Brazil's CSN, was extended to March 4.
Earnings per share more than doubled from $2.75 to $7.26.
Rio shares fell 2.5 per cent to £45.41 in midday trading in London. CNN
