Anglo-Australian miner Rio Tinto raised hopes it could boost cash returns to investors sharply in February after topping market forecasts yesterday with a 21 per cent rise in first-half profit.
The world’s number two miner slashed costs and cut capital spending quicker than expected at the same time as it boosted shipments of iron ore by a fifth, which helped it offset a 29 per cent slump in prices of the steelmaking ingredient this year.
Strong cash flows allowed Rio to cut net debt to $16.1bn (£9.55bn), putting it within the mid-teens range it wanted to hit before it would consider returning capital to shareholders. That boosted expectations for a share buyback in February, when it announces full-year results. “There’s pretty good scope there for the board to have some fairly good news in early 2015,” chief financial officer Chris Lynch said, adding the company is no longer under pressure to cut net debt.
Investors and analysts were impressed the company was able to boost profit and cut net debt by $2bn even as revenue fell slightly, and said expectations were high for fat returns to shareholders in February.
“They need to deliver on those expectations and they should have the capacity to do that, given the way they’re talking. So show me the money,” said Rohan Walsh, an investment manager at Karara Capital, which owns shares in Rio Tinto.