Shares in mining giant Rio Tinto (RIO) jumped 3.6% to £64.87 after it declared the largest dividend in its 148-year history and reported a big increase in profit as it became the latest miner to benefit from booming iron ore prices.

The FTSE 100 stalwart declared a full-year dividend of $4.64 per share, up 21% year-on-year, and also announced a special dividend of $0.93 per share, taking the total payout for 2020 to $5.57 per share. The $9 billion total paid to shareholders for 2020 is the most the company has ever paid out.

It comes as underlying earnings for the year through December, a measure tracked by analysts, rose 20% to $12.4 billion on revenue of $44.6 billion. Net debt tumbled significantly, falling to $664 million from $3.65 billion.

Around 90% of Rio’s earnings have come from iron ore, allowing it to benefit from the surge in prices more than its rivals Anglo American (AAL) and BHP (BHP).

 

Iron ore has soared almost 85% in the past year spurred on by demand from China, the world’s biggest iron ore consumer, prompting talk of long-run demand hikes. Iron ore is a key component in the manufacture of steel.

Miners can profitably dig the commodity out of the ground for around $15 per tonne. At its peak in December, iron ore prices hit $185 per tonne.

ANALYST VIEW

Third Bridge analyst Peter McNally pointed out surging iron ore prices have also allowed the company to deliver $9.4 billion in free cash flow, its highest figure in the past decade, though cautioned that Rio’s future capex is creeping higher, moving up by $500 million to $7.5 billion for 2021 and 2022.

But he added, ‘As long as iron ore prices are sustained and Rio Tinto can deliver their volumes in a safe operating environment, their financial outlook remains healthy.

‘New management continues to express regret for the destruction of the rock shelters at Juukan Gorge and is implementing action plans for more sustainable mining activities.’

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Issue Date: 17 Feb 2021