Rio kicked off H1 reporting for the major miners, announcing record-breaking profits off the back of a sky-high iron ore price. Underlying earnings was US$12.2 billion, with US$10.2 billion of free cash flow. The company has moved into a net cash position of over $3 billion. Rio is a debt-free, money making machine right now.
The company announced a monster interim dividend of US$5.61/per share (A$7.62). With a closing share price of $133.42 on Friday, that’s 5.7% of the share price (on a semi-annual dividend). The average realised price for iron ore was US$168/t over the half. And even though it has retraced a little sharply very recently (from US$220 towards US$180/t), needless to say it still remains at extremely positive levels for Rio. Its smaller aluminum and copper divisions also did well on the back of rising prices.
The announcement brings home just how profitable our mega miners are amid the current commodity price surge. Their volumes are high, costs are low and capital management prudent. They’re perfectly placed to deliver rivers of gold to investors. The market is keenly watching BHP and Fortescue for their announcements to shareholders after their H1.
The skeptics look to have had their pants pulled down as the crash in commodity prices remains elusive. Or if it does come, will miners have paid out so much cash to shareholders that it won’t really matter?
Disc: holds RIO