Rio Tinto fired the starting gun on a fresh round of share buybacks in the mining sector, laying out a plan to return $3.2bn to shareholders following the Anglo-Australian miner’s disposal of coal assets.
The programme will include an off-market share purchase of up to 41.2m shares worth about A$2.7bn (US$1.96bn) and an on-market buyback, with details on the latter to be announced once the former is completed.
It follows an earlier promise by Rio to return up to $7bn to shareholders through dividends and share buybacks, highlighting the mining sector’s continued emphasis on maximising shareholder returns over deal making and investment.
“Returning $3.2 billion of coal disposal proceeds demonstrates our commitment to capital discipline and providing sector leading shareholder returns,” said Jean-Sébastien Jacques, Rio’s chief executive.
Shares in Rio rose as much as 3.7 per cent in Sydney following the announcement.
Global companies have engaged in a wave of share buybacks this year, particularly in the US where Goldman Sachs predicts the volume of these repurchase programmes will exceed a record-breaking $1tn in 2018.
The price of many commodities has exceeded many analysts’ expectations. Thermal coal prices have more than doubled over the past three years with the Newcastle benchmark hitting a seven-year high in July of $119 per tonne, according to Bloomberg data.
“The miners are showing strong financial discipline with operating cash flow generally returned to shareholders through dividends and buybacks returning cash from asset sales,” said Clarke Wilkins, a Citi analyst.
Rio is using the proceeds of its sale of several coal mines to undertake its $3.2bn share buyback, which it is splitting between an off-market share purchase in Australia and an on-market buyback in London.
The programme is tailored to be tax efficient for its Australian shareholders, who can make use of the country’s system of franking credits to cut taxes.
Get alerts on Rio Tinto PLC when a new story is published