Rio Tinto Faces Headwinds Despite Record-Breaking Profits

Rio Tinto has paid out a monster $16.8bn (£12.4bn) dividend to shareholders, the second biggest in the history of the FTSE 100, after it rebounded from the pandemic with record profits.

In the company’s freshly released full-year results, the miner recorded a 116 percent boost in after-tax profits, rising to $21.1bn.

It also unveiled a total dividend of $10.40 per share – representing a 79 percent pay-out.

This is a record payout for the company, and the second biggest dividend in the history of the index, behind only Vodafone’s £18bn dividends in 2014 after it sold its stake in Verizon.

Net cash from operating activities also soared 60 percent to $25.35bn, with a free cash flow of $17.7bn.

The London-listed mining giant’s stellar performance has been powered by higher iron ore prices and booming demand from China.

Rio Tinto chief executive Jakob Stausholm said: “Our people have continued to safely run our world-class assets and are working hard to improve our operational performance, despite challenging operating conditions from prolonged COVID-19 disruptions.” 

Miner’s shares slump despite record dividends

Commenting on the latest numbers, Steve Clayton, fund Manager at HL Select argued the results reflected prudent cost-control measures and the global revival in commodities.

He said: “These results are all about commodity prices and the cash flow that comes from low production costs. Iron ore revenues drive the majority of Rio’s revenues and with ore prices strong and Rio’s operating costs amongst the lowest in the industry, cash generation was always going to be strong in 2021.”

Forecasting its future performance, AJ Bell’s investment director Russ Mould, suggested it was possible Rio Tinto’s dividends and earnings had now peaked in the current commodities cycle – with the group increasingly less likely to fork out special dividends.

He explained: “There are plenty of headwinds to suggest global economic growth may slow and forecasts would suggest Rio Tinto’s dividends are going to get progressively smaller over the next three years, though that is no doubt a reflection of special dividends being less generous and then not happening at all as it reverts to only paying ordinary dividends.”

The miner’s shares were down 1.7 percent on the FTSE 100 following the results, underperforming other miners – with the possibility investors remain hesitant towards the company following successive blows to its reputation.

Prior to the results, the world’s biggest iron ore producer had endured a difficult year.

Not only because the miner was struggling with headwinds such as inflation and Chinese pricing measures, but because it had suffered multiple scandals.

Last year, Rio Tinto faced significant blowback from its decision to blast an Aboriginal cave site to expand an iron ore mine in the Juukan Gorge, resulting in a shareholder revolt and the departure of former boss Jean-Sébastien Jacques.

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Boris Ivanov, global commodities expert and founder of Emiral Resources argued that miners will be under increased scrutiny to be responsible companies amid rebounds in profits and revenues.

He explained: “Capital is no longer the only priority for shareholders, instead investors want mining companies to deliver a level of corporate and social responsibility and satisfy growing ESG criteria. For Rio Tinto which was embroiled in scandals including toxic workplace culture, profits may not be enough to silence concerned shareholders. They’ll need to re-think their internal practices, mend their culture and rebuild trust in the countries and communities they operate.”

This was touched on by Stausholm in the statement accompanying the full-year results, where he reaffirmed the company’s commitment to decarbonization and reforming its workplace.

He said: “We continue to evolve and deepen the way we engage and interact with all stakeholders as we work hard to generate and strengthen relationships wherever we operate.”

By City AM

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