Rio Tinto share price up, announces $2 billion share buyback after beating estimates

Rio Tinto Plc reported Thursday full-year profit above expectations, driven by higher production and cost cuts, and announced a $2 billion share buyback program.

The worlds second-largest miner stated underlying earnings of $9.3 billion for the 12 months ended December 31, down 9% compared to last years result of $10.2 billion. The figure also surpassed the $8.97 billion projected by the 26 analysts surveyed by Bloomberg.

The drop in earnings was mostly due to the 18% decrease in profit from iron ore, which contributed $8.11 billion, or 87%, to overall underlying profit.

Despite the 47% drop in the price of iron ore, due to the market being oversupplied by new Australian players, Rio Tintos profitability from the metal was above expectations.

Additionally, the London-based company increased its production over the past year, which reflected in a 30% decrease in the companys average price for the metal.

Meanwhile, earnings from aluminium more than doubled to $1.25 billion, surpassing copper, which increased 11% to $912 million.

Revenue slid from $51.2 billion to $47.7 billion in 2014, while net income jumped from $3.7 billion to $6.5 billion.

By the end of 2014 Rio managed to reduce its net debt from $18.1 billion to $12.5 billion, substantially below projections. The reduction was mainly contributed to low mining expenses, driven by plunging oil prices and weakness in the Australian dollar.

During this year, the company projected to reduce costs by $750 million, further improving it position as the lowest-cost producer.

Capital expenditure in 2014 was 37% lower compared to the prior year and stood at $8.2 billion, as Rio Tinto completed its existing major projects and exercised “capital discipline”.

For 2015, Rio Tinto projected to spent less than $7 billion on new projects, with capex to remain around that figure in 2016 and 2017.

The company also said it would spend $2 billion on buying back shares, answering shareholders call for higher returns. Investors were not satisfied during the commodities boom, when companies would rather fund major projects with the majority of their proceeds than deliver higher returns.

In 2012 Rio Tinto had a capital expenditure of more than $17 billion.

The company is also lifting its full-year dividend by 12% to $2.15 per share, up from expectations of $2.12 per share. That combined with the proposed share buyback program will return to shareholders almost $6 billion.

“Last year, we made a clear commitment to materially increase cash returns to our shareholders. We have delivered this today.” said Chief Executive Sam Walsh.

Rio Tinto lost 0.70% on Wednesday and closed at GBX 2 971.5 in London. On Thursday the stock climbed 3.82% to GBX 3 085 at 12:50 GMT, marking a one-year decrease of 12.14%. The company is valued at £55.35 billion.