The Rio Tinto Ltd (ASX: RIO) share price could rise today after the mining giant delivered record returns to shareholders in 2018. Shares opened higher on the London Stock Exchange overnight and are expected to open higher on the ASX this morning.
Rio Tinto’s origins date back more than 145 years, but today it is one of the world’s largest aluminium and iron ore producers, with much of its sales revenue coming from its operations in Western Australia. It also owns, fully or partly, mining projects for copper, diamonds, uranium and other minerals.
5 Key Takeaways From Rio’s Report
- Cash returned to shareholders during 2018 hit $13.5 billion, with a full-year dividend of A$4.2173 per share
- Net cash from operating activities fell 15%to $11,821 million
- Capital expenditure increased 21% to $5,430 million
- Net profit/earnings increased 56% to $13,638 million
- Basic earnings per share increased 62% to 793.2 cps
Analyst Targets
According to Bell Potter, Rio’s consensus 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 Tinto shares traded slightly higher yesterday in anticipation of this report, but the size of the special dividend – US$4 billion – surprised many analysts and investors. On top of this, basic earnings per share increased from 490.4 cents per share to 793.2 cents per share.
On the down side, 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.
Management Commentary
“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 Tinto Chief Executive Officer Jean-Sebastian Jacques said of the result. “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.”
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.”
Outlook
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 the 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 says that “while results are encouraging, the exploration project is still at an early stage”.
If you’re considering investing in Rio Tinto shares, you might also consider BHP Group Ltd (ASX: BHP) or Fortescue Metals Group (ASX: FMG), both of which you can find more information about on the Rask Media website: “BHP Group HY result” and “Fortescue Metals Group quarterly activities report“.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
