Rio Tinto, the world’s biggest producer of iron ore, has rewarded investors with the biggest dividend in its history after what its new chief executive described as a “year of extremes”.
The Anglo-Australian miner was one of the biggest beneficiaries of China’s rapid recovery from the pandemic, allowing it to hand $9bn of cash back to shareholders, including a record final dividend of $6.5bn declared on Wednesday.
Rio’s most important commodity — the steelmaking ingredient iron ore — surged almost 85 per cent in 2020 to a nine-year high of more than $175 a tonne on the back of robust demand from China’s vast steel industry.
At the same time, its reputation as one of the best operators in the industry was shredded when it destroyed a sacred Aboriginal site in May to make way for a mine expansion in Western Australia, home to its hugely profitable iron ore business.
The blasts at Juukan Gorge cost Rio’s former chief executive Jean-Sébastien Jacques and two senior lieutenants their jobs after investors and indigenous groups demanded accountability for the incident.
Jakob Stausholm, previously Rio’s finance head, was named chief executive shortly before Christmas. He has made restoring trust with indigenous groups and other stakeholders a priority.
Speaking from Perth after the publication of Rio’s best annual results in almost a decade, Stausholm said the Juukan Gorge blasts were a “dark day for Rio” and had caused considerable damage to its relationship with the Puutu Kunti Kurrama and Pinikura people, the traditional owners of the site.
“Earlier this week I visited Juukan Gorge . . . and I personally expressed my deep regret for the damage caused,” Stausholm said. “It was a humbling experience and had a profound impact on me.”
Stausholm was speaking after Rio said underlying earnings — the figure tracked by analysts — rose 20 per cent to $12.4bn in the year to December on revenue of $44.6bn. Net debt fell to $664m from $3.65bn. Profit before tax was $15.4bn, up from $11.1bn in 2019.
Iron ore accounted for 90 per cent of Rio’s earnings, underlying the importance of its giant mines in Western Australia.
The company’s strong financial performance allowed it to declare a final dividend of $3.09 a share, supplemented by a special payment of $0.93 a share.
Added to its half-year dividend, Rio has returned $9bn to shareholders for its most recent financial year, the biggest payout in its 148-year history.
“We earned a lot of money last year . . . we have less than $1bn of net debt so it was difficult to argue we should hold back on dividends quite frankly,” said Stausholm. “We have found the right sweet spot here.”
Rio’s record dividend came on the heels of announcements by BHP, the world’s biggest miner, and Glencore that they would return a combined $6.7bn of cash to shareholders, huge payouts that underlined the mining industry’s status as one of the hottest areas of a global economy battling back from the pandemic.
“Today’s result provides another example of the strong payouts on offer in the mining sector and the likely ability, and intent for this to continue, especially as iron ore prices stay elevated, should help to underpin share prices,” said Tyler Broda, analyst at RBC Capital Markets.
Rio also announced its first goals for so-called Scope 3 emissions — the carbon dioxide generated when customers burn or process its raw materials. These included a target of net zero emissions from shipping its products by 2050 and investment in technologies that could deliver reductions in the carbon intensity of steelmaking of at least 30 per cent from 2030.
Cutting Scope 3 emissions is emerging as a huge challenge for the mining industry. This is especially true for companies that produce commodities for energy-intensive sectors such as steelmaking, which account for about 7 per cent to 9 per cent of direct fossil fuel emissions.
Stausholm’s predecessor refused to set goals for Scope 3 emissions, saying he could not impose targets on Rio’s biggest customers in China.
Financial Times