Rio Tinto Increases Share Buyback Plans After Jump in 1st-Half Net Profit -- Update

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--Rio Tinto PLC (RIO) said it would buy back a further $1 billion in shares this year, after the mining company continued to reduce debt and recorded a jump in half-year profit.

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In all, Rio Tinto said Wednesday it would return $3 billion in cash to shareholders, including the increase to a $500 million buyback program started earlier in the year and a raised interim dividend.

The U.K.-Australian company has benefited from higher prices for its output, from coal to iron ore, which buoyed revenue and almost doubled cash flow from its operations. It said it also met a target of reducing cash costs by $2 billion six months earlier than planned.

Net profit rose to $3.31 billion in the six months through June from $1.71 billion a year earlier, while revenue increased 25% to $19.32 billion from $15.5 billion. The improvement came despite struggling production of iron ore and steelmaking coking coal over the first half. Disruptive wet weather and rail maintenance in Australia prompted Rio Tinto to scale back its full-year production targets for the commodities.

However, mined copper output started to rebound in the second quarter from a lengthy strike at a mine in Chile, while thermal-coal production grew for the half year.

Net debt was cut by $2 billion over the six-month period to $7.57 billion, taking gearing--a measure of a company's debt relative to equity--to 13% from 17% at the end of December.

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"We continue to have the strongest balance sheet in the sector," said Chief Executive Jean-Sebastien Jacques, who took the helm of the mining company about a year ago.

Expectations grew in recent months that Rio Tinto would take the lead over many of its peers in increasing returns to shareholders, leveraging improved cash flow and higher commodity prices.

Mr. Jacques said Rio Tinto would pay a dividend of $1.10 a share, the highest interim payout in the company's history, while also buying back a total $1.5 billion in shares before year-end.

"The entire team is working every day to ensure we generate as much cash as we can," he said during a conference call. "The momentum is there."

In May, Rio Tinto moved to further reduce debt, initiating a bond-repurchase plan for up to $2.5 billion that followed on from a series of bond redemptions and buybacks in 2016 valued at $7.5 billion.

In June, Rio Tinto backed offer from Yancoal Australia Ltd. (YAL.AU) for its Australian coal unit, Coal & Allied Industries Ltd. China-backed Yancoal offered an improved bid of $2.69 billion to top a rival approach from Glencore PLC (GLEN.LN).

Rio Tinto will wait until the cash is in the bank before deciding what to do with the proceeds, said Chief Financial Officer Chris Lynch.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 02, 2017 04:05 ET (08:05 GMT)