Rio Tinto may slash dividend by up to half

Giant haulage trucks at an iron ore mine in the Pilbara area of Western Australia in this photo provided by Rio Tinto. The company reported that underlying earnings fell to US$4.5 billion last year, from US$9.3 billion a year earlier.
Giant haulage trucks at an iron ore mine in the Pilbara area of Western Australia in this photo provided by Rio Tinto. The company reported that underlying earnings fell to US$4.5 billion last year, from US$9.3 billion a year earlier.PHOTO: REUTERS

Mining giant at risk of credit rating cut as commodity rout erodes earnings

MELBOURNE • Rio Tinto Group, the world's second-biggest mining company, said it could cut its dividend by as much as half, strengthening the company's finances after a rout in commodity prices that reduced full-year earnings by 51 per cent.

The producer joins rivals Vale and Glencore in trimming or abandoning dividend payments as a safeguard against the deepening collapse in commodities.

Rio's payout for this year will not be less than US$1.10 (S$1.53) a share, after it held the 2015 dividend at US$2.15 a share, the London-based producer said yesterday. Future payments will be 40 to 60 per cent of underlying earnings.

Global mining firms are under pressure from investors and credit rating agencies to conserve cash.

Standard & Poor's this month cut BHP Billiton's rating and warned Rio that it may have its A rating lowered by one notch if the producer did not take action.

A lower dividend could also give Rio the financial headroom to buy assets at knockdown prices as competitors are forced to restructure.

"The game has changed," chief executive officer Sam Walsh told reporters on a conference call.

"It is more volatile. We have seen a rapid decline in commodity prices and we are taking proactive action and taking leadership in responding to this."

Changes to Rio's dividend policy and planned new capital spending cuts of about US$3 billion through 2017 may be enough to keep the rating companies at bay, Mr Evan Lucas, a Melbourne-based market strategist at IG Ltd, said by phone.

"Rio is in a solid position. The word is surviving, and they're surviving better than most," he said.

The company reported in a statement that underlying earnings fell to US$4.5 billion last year, from US$9.3 billion a year earlier. That compared with a US$4.6 billion average of 24 analyst estimates compiled by Bloomberg.

Rio reported a net loss of US$866 million and will book impairment charges of about US$1.8 billion, mainly related to its Simandou iron ore project in Guinea, uranium unit Energy Resources of Australia and the Roughrider uranium project, it said in the statement.

The mining industry was battered last year as iron ore prices touched the lowest levels in at least six years and industrial metal prices plunged 27 per cent, the worst performance since 2008, as China's demand cooled.

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A version of this article appeared in the print edition of The Straits Times on February 12, 2016, with the headline 'Rio Tinto may slash dividend by up to half'. Print Edition | Subscribe