Iron ore producer Rio Tinto (RIO.L) announced the biggest dividend in its 148-year history as it posted a 3% increase in 2020 revenue, and separately said it plans to spend $1bn ($1.4bn) on emissions reduction initiatives over the next five years.
It shares ticked up roughly 3.5% on Wednesday morning.
Rio announced ordinary dividends during last year of 464 cents per share, with an additional special dividend of 93 cents. The total dividend was up 26% year-on-year.
Full year revenues were $44.6bn, up 3% year-on-year, while Full year profit after tax rose 22% to $9.8bn
“That reflects 14% growth in iron ore, thanks to significantly higher market prices, offset by lower volumes and process elsewhere in the portfolio,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
Iron ore prices was up round 80% last year as stimulus measures from China to accelerate its economic recovery from the coronavirus pandemic resulted in strong demand from its steel mills. This was coupled with weak production in Brazil.
“Rio has continued the recent trend in mining majors, with bumper results driven by high levels of efficiency and rising commodity prices,” Hyett said.
He added that iron ore has been the standout performer, “and since that remains Rio’s bread and butter that’s turbo-charged results at the group level.”
However, he warned investors should remember that commodities can be fickle – with prices booming or bombing at the least expected moments.
Rio Tinto CEO Jakob Stausholm said: "It has been an extraordinary year – our successful response to the COVID-19 pandemic and strong safety performance were overshadowed by the tragic events at the Juukan Gorge, which should never have happened.
He was referring to Rio Tinto’s destruction of the 46,000-year-old gorge in Western Australia in May 2020 to access higher-grade iron ore, which resulted in a major backlash.
Hyett explained that the destruction of historic aboriginal sites in Australia marred "what would otherwise be a very good year for the group – ultimately costing the company much of its senior management team."
Stausholm went on to say: "My new executive team and wider leadership of the company are all committed to unleashing Rio Tinto’s full potential. We will increase our focus on operational excellence and project development and strengthen our ESG (environmental, social, and corporate governance) credentials.”.
In a separate report, Rio said it plans to spend approximately $1bn on emissions reduction initiatives over the first five years of its ten-year target period.
Last year, it announced new 2030 targets: to reduce absolute emissions by 15% and emissions intensity by 30% relative to its 2018 baseline.
It said these targets are consistent with a 45% reduction in absolute emissions, relative to 2010 levels, and the Intergovernmental Panel on Climate Change pathways to 1.5°C.
Stausholm noted that “in many important applications, there are no low-carbon alternatives to steel, aluminium and copper; furthermore, these materials are essential to enable the low-carbon transition. The challenge is to produce them sustainably – not only with lower emissions, but also in a way that respects communities.”
Meanwhile, Peter McNally, global sector lead for industrials, materials & energy at Third Bridge said that "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," he added.
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