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Rio Tinto Hunts for Deals, Gives Cash to Shareholders -- WSJ

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02/08/2018 | 08:48am CEST
By Rhiannon Hoyle 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 8, 2018).

SYDNEY -- Rio Tinto PLC said it was hunting for acquisitions including in new commodities such as lithium, as it handed more cash to shareholders through an increased buyback program and record annual dividend.

The remarks by Chief Executive Jean-Sebastien Jacques -- while unveiling a 90% annual profit rise -- show that resources companies are rethinking their strategies after years of focusing on cost cuts in the wake of a downturn in commodity prices that began around 2011.

Rio Tinto reported a net profit of US$8.76 billion for 2017, up from US$4.62 billion a year earlier, as prices of coal, copper, aluminum and iron ore rebounded. The company promised a full-year dividend of US$2.90 a share, up from US$1.70 in 2016, and said it would buy US$1 billion in shares by the end of 2018. That is in addition to the US$1 billion share buyback announced midyear and a US$2.5 billion buyback linked to the sale of its Coal & Allied business.

The results kick off a string of earnings reports by the world's biggest miners that is expected to show a sharp rise in cash flow, raising questions about how they plan to spend the windfall. BHP Billiton Ltd., which is due to report a half-year profit on Feb. 20, is coming under pressure from activist investor Elliott Management Corp. to sell assets, delay risky projects and rethink its dual-listed corporate structure to improve shareholder value.

Investors are nervous about the mining industry's record in doing big deals. Rio Tinto's forays in Guinea and Mozambique led to hefty write-downs and investigations by regulators in many countries including the U.S. over the miner's disclosures and financial reporting.

At the same time, investors worry that mining companies have been slow to react to shifts in demand for commodities as China's economy slows and the focus turns to new drivers of demand, such as electric vehicles.

Mr. Jacques said Rio Tinto has "a growth agenda" and is screening opportunities, including in commodities it doesn't already produce.

Rival Glencore PLC, led by mining-deal veteran Ivan Glasenberg, has so far led the charge on acquisitions, scooping up new businesses including coal and zinc operations.

"We are very well positioned to take advantage of any kind of opportunities," Rio Tinto's Mr. Jacques said Wednesday.

Lithium, used in rechargeable batteries, is among the commodities on Rio Tinto's radar, said Chief Financial Officer Chris Lynch.

A rally in metals markets has been gathering steam as some of the world's largest countries and auto makers ramp up pledges to phase out diesel cars. Analysts project electric vehicles will play a major role for commodities such as lithium and cobalt, also used in batteries, and push up prices of more widely used metals including copper and nickel.

Rio Tinto already owns one lithium deposit in Serbia that is yet to be developed.

The challenge facing Rio Tinto, Mr. Lynch said in an interview, was getting an asset for the right price. "You are not going to steal assets in this day and age," he said.

Global miners are broadly expected to beef up shareholder returns after emerging from a painful downturn that sparked widespread cost-cutting.

Rio Tinto said it had boosted cash flow by US$400 million from improved productivity, despite grappling with higher raw-material costs. Management hit a target to strip out US$2 billion in cash costs midyear, six months earlier than planned.

Rio Tinto said net debt reduced by 60% to US$3.85 billion, its lowest level in a decade. That took its gearing -- a measure of a company's debt relative to equity -- to 7% from 17% at the end of 2016.

Mr. Jacques said the miner was upbeat on the world economy, despite recent volatility in global markets.

He said China's economy looked good in the medium- to long-term and highlighted robust growth across most major markets. The International Monetary Fund estimates the world's seven biggest economies -- the U.S., China, Germany, Japan, France, the U.K. and India -- each grew more than 1.5% in 2017. They appear poised to strengthen further in 2018.

"Today, we are in a good space," Mr. Jacques said. "Mining at the end of the day is a GDP-driven industry."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
LME COPPER CASH -0.64% 6081 End-of-day quote.-15.32%
LME ZINC CASH -2.35% 2492.5 End-of-day quote.-26.19%
RIO TINTO -1.27% 3775 Delayed Quote.-3.01%
RIO TINTO LIMITED 0.11% 74.28 End-of-day quote.-2.12%
SILVER 0.35% 15.039 Delayed Quote.-9.47%
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