$2bn shareholder sweetener as mine giant Rio Tinto falls off the supercycle

Anglo-Australian FTSE 100 miner Rio Tinto is ploughing $2bn into a share buyback, as its annual earnings fall 10% on the commodities price crash.

by Andrew Saunders
Last Updated: 07 Sep 2015

Read our profile of Rio boss Sam Walsh here

Rio Tinto's $2bn (£1.3bn) share buyback comes as no great surprise - its feisty chief exec Sam Walsh (whose first job was driving a recycling truck in his home town of Melbourne) made a commitment to increase returns to shareholders after he rebuffed a $160bn takeover bid from rival Glencore last year.

As Glencore boss Ivan Glasenberg is not a man to give up, many expect him to come back for another go at Rio when the six month stock exchange exclusion zone expires shortly. Hence Walsh’s late Christmas pressie to his investors - stick with me and there’s more of this to come is his message.

And indeed there might well be - before Rio’s results were announced this morning there was speculation that the buyback programme could be as large as $5bn, so the canny Walsh has left room for more and better sweeteners down the line should they become necessary.

The whole clamjamfry has been provoked by the abrupt end of the so-called commodities supercycle last year - the price of iron ore, Rio’s staple product, more than halved during 2014. Hence the drive for consolidation. But Walsh is in no mood to merge, and has cut costs dramatically - capital spending is down 37% to $8.2bn, net debt down 31% to $12bn - to protect his margins and fill his war chest to fund today’s shareholder largesse.

It’s a good job he did, too - Rio’s underlying earnings are down 10% to $9.3bn for the year and revenues fell from $51.2bn to $47.7bn. But despite this it’s in better shape than many rivals and the markets love the buyback - Rio’s shares were the highest risers on the FTSE this morning, up 3.4% to 3,070p. Round one to Walsh…

Read our profile of Rio boss Sam Walsh here

Tags:
Economy Mining

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today