Rio dividend surprise masks aluminium hit

2012-02-09 08:41

Melbourne - Global miner Rio Tinto reported a 6% drop in underlying second-half profits and took a $9.3bn charge mainly against its aluminium business, but appeased investors with a huge dividend hike, underscoring its long-term confidence.

Like rival BHP Billiton [JSE:BIL] on Wednesday, the world’s No.2 iron ore miner was cautiously optimistic that a soft landing in China would drive growth this year and said expected commodity prices would remain volatile.

“Whilst our growth programme looks to the medium and longer term, we are mindful of short term uncertainties,” Chief Executive Tom Albanese said in a statement.

Underlying earnings before one-offs fell to $7.77bn for July-December from $8.22bn a year earlier spurred largely by the group's booming iron ore sales. Analysts on average had expected a second-half profit of $7.5bn before one-offs.

Including the $9.3bn in writedowns on its aluminium and diamonds businesses, the company landed in the red for the second-half, which led Albanese and Rio Chairperson Jan du Plessis to forego their bonuses.

Rio bought the Alcan aluminium business for $38bn at the height of the boom in 2007.

“As the acquisition of Alcan happened on my watch, I felt it only right not to be considered for an annual bonus this year,” Albanese said.

Second-half profit from iron ore, its biggest earner, jumped 14% to $6.9bn.

The aluminium division, which the company plans to shrink by hiving off most of its Australia and New Zealand assets, just broke even with earnings of $63m in the December half.

Rio, cashed up from massive iron ore sales and carrying little debt, had been considered the most likely among the major miners to reward investors with a share buyback or a substantial dividend increase.

It came through on Thursday, boosting its full year dividend by 34% to 145 cents, however it did not expand its $7bn buyback due to be completed this quarter.

Investors say the company should still have enough cash to chase acquisitions, with Canada’s Ivanhoe Mines, owner of the huge Oyu Tolgoi copper and gold mine operated by Rio Tinto, in its sights.

“I think Rio has within its wherewithal enough firepower to conduct capital management at the same time as doing sensible M&A,” James Bruce, a portfolio manager at Perpetual, which owns shares in Rio Tinto, said ahead of Rio’s results.

Rio’s shares, which have surged 20% so far this year, slipped 0.2% on Thursday ahead of the results announcement.