Rio Tinto rides iron ore gains to post record profit, pay $17bn dividend

Iron ore accounts for almost 90% of Rio’s earnings. (Image of the Paraburdoo operation, in the Pilbara, courtesy of Rio Tinto.)

Rio Tinto posted on Wednesday its best ever annual profit and a record full-year dividend of $16.8 billion, boosted by higher iron ore prices and strong demand from top consumer China.

The stellar results cap a mixed year for the world’s biggest iron ore producer, in which demand for its main product picked up as the global economy slowly recovered from the coronavirus but inflation and Chinese scrutiny of prices created headwinds.

Rio’s reputation suffered from a scandal over poor workplace culture, while Serbia shut down a lithium project, a promising growth area. On the plus side, it resolved a long-running dispute over a massive Mongolian copper-gold mining project.

The Anglo-Australian miner reported underlying earnings of $21.38 billion for the year ended Dec. 31, up 72% from a year earlier. Analysts had expected underlying earnings of $21.63 billion, according to Visible Alpha.

“Our balance sheet is the strongest it’s been for at least 15 years,” Chief Executive Jakob Stausholm told reporters after the results.

Rio Tinto declared a final special dividend of 62 cents a share and a final dividend of $4.17, higher than the year earlier final dividend of $3.09, taking its total 2021 dividend to a record $10.40 a share.

Its shares closed up 1.2% on the Australia Stock Exchange ahead of the results. But share prices were down 0.3% in London by 1042 GMT, underperforming other miners.

Rival BHP Group also declared a record dividend payout after reporting an estimate-beating first-half profit last week. 

Labour shortages due to covid-19 curbs have hit Australian miners, with Rio previously forecasting weaker-than-expected iron ore shipments for 2022.

“The going gets a little harder from here, with inflation starting to push costs higher,” said Steve Clayton, fund manager at HL Select.

“We expect the payout to be lower in FY2022, reflecting less favourable operating conditions, but to still represent an attractive yield to shareholders.”

China, which accounts for more than half of Rio’s revenue, said it would prevent “excessive hoarding” of iron ore, a move analysts have said could affect the industry, though implementation details were still unclear. 

Stausholm declined to comment on China’s move, saying nothing had officially been communicated yet.

Asked by analysts about big M&A opportunities, Stausholm said he would “be very cautious right now”.

He added, “…Because we are pretty high up in the cycle and I would dream about looking back one day and say that we invested counter-cyclically and making acquisitions right now could be very much pro-cyclical.”

Reviewing options

In the results statement Rio said it was committed to exploring all options in Serbia, which shut down its $2.4-billion Jadar lithium project.

It was “reviewing the legal basis of the decision”, it added, and the implications for its activities in Serbia.

“Ultimately, it is for the government of Serbia to decide whether they want to see this opportunity happening,” Stausholm told reporters. “Right now what we are offering is to have meaningful engagement with stakeholders.”

Stausholm took over the top job in the wake of a widespread backlash against the company after it blasted the 46,000-year-old Juukan Gorge rock shelters to expand an iron ore mine.

An external review of the miner’s workplace culture released this month outlined a culture of bullying, harassment and racism, including 21 complaints of actual or attempted rape or sexual assault over the last five years.

“We have become more humble and better listeners, both internally and externally, as we extract the full learnings from Juukan Gorge,” Stausholm said.

(By Sameer Manekar, Harish Sridharan and Clara Denina; Editing by Muralikumar Anantharaman and Clarence Fernandez)

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