Why Shareholders Aren’t Loving Rio Tinto’s Cash Machine – by David Fickling (Bloomberg News – August 1, 2018)


The big mining companies are thriving again, but they’re right to be cautious.

Poor little rich kids. After a brush with death when commodity prices slumped barely three years ago, the world’s miners are back in rude health. Net debt at the big five is now headed to its lowest levels since the peak of the previous mining boom in 2011, based on reported results and analyst estimates.

Free cash flow hasn’t quite scraped those heady heights yet, but it’s looking barely less robust than it was back then — and much more sustainable, too. While the measure dropped by 38 percent in Rio Tinto Group’s first-half results Wednesday, the change was attributable almost entirely to the timing of a $1.2 billion tax payment on the previous year’s earnings:

One obvious reason for the strength of cash flows is that, contrary to predictions including our own, the companies have so far resisted the temptation to fall off the capital-discipline wagon and splurge on building new mines and infrastructure.

Add all the spending by the five in our sample group together and you’re currently looking at less than $5 billion in capital expenditure per quarter, about what BHP Billiton Ltd., Rio Tinto and Vale SA were each spending individually at the last peak.

There’s one group of people that hasn’t caught on to this brave new world: equity investors. Rio Tinto’s London-listed shares fell as much as 4.3 percent Wednesday morning, putting them on track for the worst performance in 18 months.

For the rest of this article: https://www.bloomberg.com/view/articles/2018-08-01/rio-tinto-s-cash-machine-isn-t-dispensing-shareholder-love

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