Rio Tinto revealed a share buyback on Wednesday, saying it would repurchase $500m of stock following a recovery in commodity prices.

Announcing a 12 per cent rise in annual profits and higher than expected dividend, the Anglo-Australian mining company said the buyback would target its UK-listed shares.

“Today’s results show we have kept our commitment to maximise cash and productivity from our world-class assets, delivering $3.6bn in shareholder returns while maintaining a robust balance sheet,” said Rio chief executive Jean-Sébastien Jacques.

The buyback highlights the turn around in the mining industry’s fortunes over the past year. A sharp and unexpected rebound in commodity prices, such as iron ore and coal, boosted profits to the extent that large, diversified miners, such as Rio, Anglo American and Glencore, were comfortably achieve their debt reduction targets.

In the year to December, Rio said underlying earnings rose 12 per cent to $5.1bn reflecting the recovery in commodity prices and the benefits of lower spending and cost cutting. Net debt fell 30 per cent to $9.6bn.

With costs and spending under control, miners are now in a sweet spot as the extra revenue from higher commodity prices flows straight through to the bottom line. Rio said it has generated more than $5bn of free cash flow in 2016.

Rio last year scrapped its longstanding policy of maintaining or increasing its dividend.

On Thursday it announced a full year dividend of 170 cents a share, a higher payment than many analysts had been expecting. The company has previously said it would pay a dividend of least 110 cents a share for 2016.

Mr Jacques took the helm of Rio in the summer. The 45-year old French executive has pledged to focus on sweating the group’s assets harder rather than pursuing ambitious deals. He is aiming to boost cash generation by as much as $5bn over the next five years.

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