MELBOURNE/LONDON – (Reuters) – Rio Tinto is expected to star among the top five global miners with a return of billions of dollars to shareholders at its annual results, even as the firm is set to report its worst half-year profit since 2009.
It will likely be all downhill for investors in the megaminers after Rio Tinto reports on Feb. 12 as they are all tipped to report sharp slides in earnings, gutted by weaker prices for almost everything they produce.
Iron ore will be the biggest source of pain, even though it remains the most lucrative product for Brazil’s Vale, Rio Tinto and BHP Billiton, and investors’ main concern is how the big miners are going to shore up cash flow. The top three producers have wounded the industry by flooding the market with new supply, knocking iron ore prices down nearly 50 percent in 2014, a steeper slide than anyone anticipated.
While boosting output, Rio has bolstered its cash flows by slashing costs, cutting capital spending and reducing debt, putting it in the best position to return cash to shareholders. BHP took the same steps, but has been whacked by plunging oil prices.
“In our opinion Rio has significantly greater flexibility (than BHP) at this point in time to pursue short-term capital management initiatives,” said Ben Lyons, a portfolio manager at ATI Asset Management.
Forecasts for a capital return, probably through a buyback of Rio’s UK-listed shares, range between $1.5 billion and $3 billion, after Chief Executive Sam Walsh promised to “materially increase” returns.
“I think it will have to be big because Sam doesn’t generally surprise on the downside. I think that is has to be punchier if it wants to achieve its purpose,” said Paul Gait, an analyst at Bernstein in London.
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