Rio Tinto Plc, the world’s second-biggest mining company, has not detoured from its plan to deliver increased dividends, after it rebuffed a takeover offer earlier this year from Glencore.
The company, one of the leading iron ore producers, also announced it deferred plans to invest in Australias Silvergrass mine until “at least the third quarter of 2015 at the earliest”, further increasing cost cuts amid falling iron ore prices.
The move follows rival BHPs decision to reduce capital expenditure, speed-up cost reductions and increase shareholder returns.
“The delivery of our progressive dividend is a key commitment. Looking out over the next five years, we expect to generate strong free cash flow and we remain committed to materially increase cash returns to shareholders in a sustainable way” said CEO Sam Walsh.
Rio Tintos dividend has increased by 15% in both 2012 and 2013 business years. Mr. Walsh promised to keep the trend going in upcoming years and also noted that the company is “not backing away from the notion of buybacks.”
In line with the companys pledge to substantially raise shareholder returns, Mr. Walsh said that the amount of the increase, and other capital management initiatives, will become known in February 2015, when Rio Tinto reports its full-year performance.
Rio Tinto has to maintain a group of happy investors in order to protect itself from Glencore, which is projected to make another attempt to takeover the global miner after it was rejected in August. Investors have asked for increased dividends after seven years of ill-considered and overpriced purchases and expansions.
“We have reduced our cost, we have reduced our debt, we have substantially reduced our capital, and thats put us in an incredibly good position to materially increase shareholder returns” Walsh told investors.
Despite delaying its $1.1 billion investment in the Silvergrass mine located in Australias Pilbara region, “in favour of capital efficient options”, the company is going through with its expansion in other Pilbara areas. Rio Tinto also said coal ore reserves in the Hunter Valley of New South Wales were 1.88 billion tons, up from its earlier projection of 1.33 tons. The company also said yesterday that it will spend $350 million in order to expand its Diavik diamond mine.
Rio Tinto Plc gained 0.33% on Thursday and closed at GBX 3 012 in London. The stock edged up 1.13% to trade at GBX 3 046 at 13:12 GMT, marking a one-year decrease of 6.58%. The company is valued at £56.48 billion.
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