Rio Tinto (ASX: RIO) shares rose overnight in London after the mining giant posted record returns for shareholders.

Rio’s Report: 3 Key Points

  • Cash returned to shareholders during 2018 hit $13.5 billion, with a full-year dividend of A$4.2173 per share
  • Capex increased by 21% to $5,430 million
  • Net profit/earnings increased 56% to $13,638 million

Jacques Upbeat

We have once again announced record cash returns to shareholders of $13.5 billion on the back of $18 billion of underlying EBITDA and a Return on Capital Employed of 19%,” Rio CEO Jean-Sebastian Jacques said.

“These strong results reflect the efforts of the team to implement our value-over-volume strategy as we continued to strengthen the portfolio and invest in future growth.”

According to consensus estimates from Bell Potter, Rio’s net profit estimate for 2018 was $8,550 million. Rio Tinto’s actual result was marginally higher at $8,808 million. This represents a 2% increase over the 2017 result.

Digging Deeper

Rio shares traded higher ahead of the report, but the size of the special dividend – $4 billion – surprised many analysts and investors. On top of this, basic earnings per share increased to 793.2 cents per share from 490.4 cents per share.

On the downside, operating cash flow decreased 15% to $11.8 billion, primarily due to tax payments related to 2017 earnings as well as higher inventory balances. Capital expenditure increased by 21% as Rio Tinto experienced higher maintenance costs to sustain the capacity of their operations. The combination of this higher capital expenditure and lower operating cash flow resulted in a 27% decrease to free cash flow.

Moving forward, Mr Jacques commented, “Our world-class portfolio and strong balance sheet will serve us well in all market conditions and underpin our ability to continue to invest in our business and deliver superior returns to shareholders in the short, medium and long term.”

Going Ahead

Looking to the next few years, capital expenditure is expected to remain at around $6 billion in 2019, increasing to $6.5 billion by 2021.

In its iron ore business, Rio Tinto’s largest by revenue, 2019 should see its Pilbara shipments between 338 and 350 million tonnes, compared to 338.2 million in 2018. Pilbara unit cash costs are expected to remain largely unchanged at $13-$14 per wet metric tonne.

A more exciting prospect for Rio Tinto in the coming year is the copper discovery in the Paterson Province in Western Australia. The company downplayed this by saying that “while results are encouraging, the exploration project is still at an early stage”.

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