Rio Tinto slides as huge cash return disappoints

After slashing costs and selling assets, Rio Tinto said it would return $3bn of cash to shareholders for the first half of 2017, but revenues, profits and the dividend came in shy of forecasts.

The mining giant generated operating cash flow of $6.3bn in the six months to 30 June, up 95% year on year, on revenue up 24% to $19.3bn thanks mainly to higher average commodity prices.

Having also cut $2.1bn from its operating cash costs in 2016 and 2017, meeting its target six months ahead of schedule, this helped it almost triple profit before finance items and tax to £6.2bn from £2.3bn.

Underlying earnings of $3.9bn were generated, more than double the 2016 first half, though net earnings of $3.3bn were $0.6bn lower than underlying earnings after foreign exchange losses of $0.4bn and $0.2bn of impairment charges.

Earnings per share rose more than 150% to 219.4 cents, which was short of the consensus forecast of 240 cents.

An interim dividend of 110 cents (83.13p) per share was declared as well as a new $1bn share buyback to be completed by the end of the year. The market was expecting a dividend of $1.24.

The share buyback represent 75% of 2017 first half underlying earnings, and comes on top of the $0.5bn buyback programme announced in February 2017.

Net debt was cut to $7.6bn from $9.6bn at the end of Decmber.

Chief executive Jean-Sébastien Jacques felt they were strong results and said: "We are now shifting gear to focus on the untapped value from our productivity programme and continue to strengthen our portfolio to build higher returns for the future."

Rio Tinto confirmed the sale of its Coal & Allied thermal coal business in Australia for $2.7bn in June and is expected to be completed in the coming months, with Jacques saying the group was "making good progress" on growth projects at Oyu Tolgoi, Amrun and Silvergrass.

Last week the Serious Fraud Office launched a corruption probe into the giant miner's historic activities in Guinea, with Rio Tinto in discussions to sell its stake in the Simandou project in Guinea to Chinalco following the signing of a non-binding agreement last October. June's purchase by Yancoal of Rio's Coal & Allied for $2.69bn has been approved by shareholders and .

Looking to the second half, Jacques said production guidance is unchanged from the second quarter operations review.

Rio Tinto shares fell more than 2% in early trade to 3,419p by 0830 BST on Wednesday.

Analyst Yuen Low at Shore Capital said the market was likely to be disappointed and he would have preferred higher interim dividend as opposed to increased share buybacks.

While results were short of revenue of $19.52bn, net profit of $4.3bn and EPS of $2.4 per share, he still considered the numbers to be "decent".

He noted that Rio is guiding for additional cumulative free cash flow of $5bn from 2017 to the end of 2021 from productivity improvements, with capex expected to remain at circa $5.0bn in 2017 and $5.5bn in each of 2018 and 2019.