12th Feb 2015 13:44
LONDON (Alliance News) - Anglo-Australian miner Rio Tinto PLC shares were in demand Thursday after it reported a fall in underlying earnings in 2014, but said it will hike its dividend and launch a USD2 billion share buyback programme in order to return USD6.0 billion to shareholders.
Rio Tinto shares were up 3.5% to 3,075.00 pence per share on Thursday afternoon.
"Last year, we made a clear commitment to materially increase cash returns to our shareholders. We have delivered this today through a 12% increase in our full year dividend and a proposed USD2.0 billion share buy-back. These represent a total cash return to shareholders, in respect of 2014, of almost USD6.0 billion," said Chief Executive Sam Walsh.
The FTSE 100-listed group said its underlying earnings, before one off items, for the year to the end of December hit USD9.31 billion, down from USD10.2 billion last year.
Rio Tinto reported net earnings of USD6.52 billion after booking impairment charges of USD1.18 billion, exchange losses on debt and mark-to-market derivatives of USD1.85 billion and other losses totalling USD1.14 billion, partially offset by impairment reversals of USD1.04 billion.
Impairment charges mainly related to the company's Kitimat aluminium project in British Colombia, whilst the impairment reversal was related to the company's assets in the Pacific Aluminium business, where the recoverable amount increased due to significant cost improvements and high regional market and product premiums, said Rio Tinto.
Revenue for the group fell to USD50.04 billion in the year, down from USD54.60 billion the year before, as revenue fell in the majority of its operating units. Iron ore revenue was down to USD23.28 billion from USD25.99 billion, while aluminium revenue edged down to USD12.12 billion from USD12.46 billion.
But the mining group said it would hike its total dividend by 12% to 215 US cents per share, up from 192 cents per share last year. The dividend comprises its 96 cents interim dividend and a 119 cents final dividend.
The group also said it would launch a USD2 billion share buyback programme, comprising a USD400 million off-market share buy-back tender and a USD1.6 billion on-market buyback of shares.
Walsh said in a television interview Thursday afternoon that the company is "committed to shareholder returns", and added that it needs to see how 2015 pans out, focusing on cutting debt further and reducing operating costs and capital expenditure.
In 2014, Rio Tinto spent USD8.16 billion in capital expenditure, down 37% from 2013, and will fall to below USD7.0 billion in 2015 and remain at that level in 2016 and 2017. The company said it has identified USD750 million of cash cost improvements it will make during 2015.
"With lower commodity prices and uncertain global economic trends, the operating environment remains tough. However, in these conditions Rio Tinto?s qualities and competitive advantages deliver superior value," Walsh said in the company's statement.
As a result of reducing its capital expenditure in 2014 and tightening costs, the company reduced its net debt to USD12.5 billion, equating to a gearing of 19%, from USD18.1 billion at 25% gearing at the end of 2013. However, the company noted that after the share buyback programme the gearing will increase again to 21%.
The company said the increased dividend payment is a direct result of lowering its debt and because of Rio Tinto's current gearing level.
The company reported a cash balance of USD12.4 billion at the end of 2014, and said it has USD1.75 billion of borrowings due to mature in 2015, which it will repay from existing cash resources, it said.
Walsh ruled out any potential mergers or acquisitions for Rio Tinto in the near-term following on from Glencore PLC's approaches in 2014. The sharp fall in the iron ore price over the last year, which is Rio Tinto's main commodity, may have caught the attention of fellow large miners, but Walsh said "now is not the time to be rushing out for high cost assets," adding the company is focused on organic growth instead.
Iron ore production, net to Rio Tinto, increased 12% year on year to 233.6 million tonnes whilst shipments rose by 18% to 239.9 million tonnes. Increased production was caused by the expansion of the Pilbara project in Australia.
In 2015, Rio Tinto is expecting iron ore shipments to increase by around 47 million tonnes from its operations in Australia and Canada.
Around 70% of Rio Tinto's cashflow comes from its iron ore business, one of the worst price-hit commodities over the last year, but Walsh emphasised that the company's average cash cost lies around USD17 per tonne with a current average price of around USD72 per tonne, leaving a comfortable margin.
Bauxite, alumina and aluminium production, net to the company reported mixed results. Bauxite production fell 3% year on year to 41.8 million tonnes while aluminium production dropped by 1% to 3.3 million tonnes. Alumina production rose 6% to 7.4 million tonnes.
In 2015, Rio Tinto said bauxite production should increase to 43 million tonnes and alumina production will see a slight increase to 8.0 million tonnes. Aluminium production is set to remain flat in 2015.
Mined copper production, net to Rio Tinto, rose 4% year on year to 603,000 tonnes and refined copper production increased by 3% to 294,000 tonnes. Copper production increases were caused by a ramp up at the Oyu Tolgoi mine in Mongolia.
In 2015, Rio Tinto expects its share of mined copper production to be between 500,000 and 535,000 tonnes and refined copper production to be between 190,000 and 220,000 tonnes.
Gold production increased by 63% to 487,000 ounces in 2014 and refined gold production increased by 31% to 252,000 ounces. Molybdenum production doubled from 2013 to 115,000 tonnes.
Coal production fell year-on-year during 2014. Hard coking coal fell by 9% year on year, semi-soft coal production fell by 17%, thermal coal dropped by 5% and uranium production fell by 50% .The fall in production was caused by the company's divestment from the Clermont and Coal Mozambique assets, it said.
In 2015, Rio Tinto is expecting coal production to see slight increases or remain fairly flat from 2014.
By Sam Unsted; [email protected]; @SamUAtAlliance
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