Rio Tinto outlines $3.2bn share buyback

Rio Tinto outlined its plans to return around $3.2bn to shareholders on Thursday through a share buyback programme, following the disposal of its coal assets.

The programme combines an off-market buyback tender targeting up to 41.2m Rio Tinto Limited shares and further on-market purchases of Rio Tinto plc shares.

This buyback is in addition to the company's existing buy-back programmes, of which $1.7bn in shares remain to be purchased and which will be completed by February 2019.

Chief executive Jean-Sebastien Jacques said: "Returning $3.2bn of coal disposal proceeds demonstrates our commitment to capital discipline and providing sector leading shareholder returns. We continue to focus our portfolio on those assets which provide the highest returns and growth, which will ensure that we continue to deliver superior value to our shareholders in the short, medium and long term."

The cash is derived from the completed sales of the Hail Creek and Valeria coal operations and the Winchester South and Kestrel mines. Rio said the sale of its Dunkerque aluminium smelter in northern France for $500m is yet to be completed. In addition, Norway's Hydro has withdrawn its offer to buy Rio's ISAL smelter in Iceland.

RBC Capital Markets analyst Tyler Broda said the announcement is not a complete surprise considering the disciplined approach to capital under the current management, although the timing of the announcement is a little unexpected.

"Nevertheless, this is likely to bolster sentiment in the near-term, and add to the theme of cash return potential for the sector at a time where we at least, would continue to approach the sector with caution. We had already included a special dividend of $1.7bn in our forecasts at year end, and so this provides a net incremental $1.5bn of cash return."

Broda added that the benefits of a buyback for Rio are less pronounced than at peers like Glencore or Vale, where the shares are trading at a wider fundamental discount to fair value.

At 1135 BST, the shares were up 2.2% to 3,802.50p.