Wednesday preview: Rio Tinto set to report rise in full year earnings

Rio Tinto is expected to report on Wednesday a 7% increase in underlying profit in 2016, boosted by a recovery in commodity prices.

The mining giant has particularly benefitted from a pick-up in iron ore prices - a major source of revenue for the mining giant - in the second half of the year.

Iron ore prices fell to a 10-year low of $38 a tonne at the end of 2015 but have rebounded in recent months, thanks to strong demand in China. It currently trades around $80 a tonne.

The consensus forecast is for Rio to report annual underlying earnings of $4.86bn compared to $4.54bn a year earlier, driven by higher iron ore and coal prices.

The group is expected to swing to a net profit of $5.18bn for 2016, versus a net loss of $866m.

RBC Capital Markets has estimated Rio added $1.1bn in cash to its balance sheet. Rio has said it expects it can generate $5bn in additional free cash flow over the next five years.

RBC believes the cash reserves from 2016 will be used to pay dividends and debt. The broker has forecast a $1.53 per share dividend, higher than Rio’s goal for at least $1.10, but below the previous year’s $2.15 payment.

Rio last year decided to end its progressive dividend policy due to the “continuing uncertain market outlook”.

“Our goal is to maintain balance sheet strength and deliver shareholder returns through the cycle,” the group said in its 2015 results. “We believe the quality of our assets provides a sound base for future returns.”

UBS expects a full year dividend of $1.40 and has projected full year after tax earnings of $5.176bn, up 14% year-on-year.

“Our estimates are 6% ahead of consensus of $4.86bn and ahead of consensus dividend of $1.33 per share.”

Wednesday 08 February

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