Rio Tinto Wednesday reported a surge in annual net profit on the back of improving commodity prices in a strong turnaround from last year's loss, and rewarded shareholders with a buyback. The world's second-largest miner reported an annual net profit of US $4.62 billion for the year to December 31, compared to a US $866 million net loss in the previous financial year when key metals prices plunged and Chinese demand slowed.
The result, which was slightly below analysts' expectations, is a reflection of the brighter outlook for the mining sector amid the commodity upswing in late 2016. The price of iron ore, Rio's main commodity, has recovered from less than US $40 a tonne just over a year ago to rising above US $80 earlier this year.
"Today's results show we have kept our commitment to maximise cash and productivity from our world-class assets, delivering US $3.6 billion in shareholder returns while maintaining a robust balance sheet," chief executive Jean-Sebastien Jacques said in a statement. "We enter 2017 in good shape," he added.
As part of the US $3.6 billion return to shareholders, Rio declared a full-year dividend of 170 US cents per share and a share buyback of US $500 million this year. While the dividend was 21 percent lower than the previous year, it was above market forecasts of about 140 US cents. The full-year amount was also higher than the minimum 110 US cents flagged by Rio last year.
Capital spending, which came in at US $3.01 billion for 2016, was expected to be about US $5.0 billion this year and about US $5.5 billion each in 2018 and 2019, Rio said. Underlying profit, a measure the Anglo-Australian giant prefers, came in at US $5.10 billion, a 12 percent increase from the prior period. The underlying result was ahead of consensus, which was about US $4.9 billion.
Shares in Rio closed 0.81 percent higher at Aus$65.69 in Sydney ahead of the release of the results. "The big improvement in the year was cost-cutting," Fat Prophets resources analyst David Lennox told AFP., "They managed to pull out US $1.2 billion in costs, which I suspect most pundits wouldn't have been expecting." Prices in key commodities such as steel-making ingredient iron ore have soared in recent months, supporting producers, with shares in Rio Tinto jumping more than 60 percent from a year ago.