Rio Tinto Limited [ASX: RIO] shares experienced a 3.135% decline this morning, in the wake of the iron ore giant’s first half results being posted after the market closed yesterday.
Their stock price is sitting at $79.08 a share at time of writing.
What’s going on with Rio Tinto?
Overseas, their London-listed stock dropped by 3% when the market opened.
This fall came despite the fact that Rio Tinto’s management just sent a payout to shareholders, including a record interim dividend and a US$1 billion expansion of its share buyback program.
The increase of Rio’s capital return was unexpected, considering the sale of some of their assets (including their Indonesian Grasberg joint-venture) is not yet finalised. But, the company did catch a break with the sale of their remaining coal assets in Queensland for a whopping US$4 billion.
The miner signed a non-binding agreement to offload Grasberg for US$3.5 billion and are planning to use the tax proceeds from the sale to hand out to investors, along with the $4 billion already in their reserves.
What’s next for the mining giant?
The good news for shareholders doesn’t stop there.
Shareholders seeking steady income investments will be excited by Rio’s announcement of a US$1.27 a share half-year dividend — translating to roughly AU$1.72 per share. A substantial increase on the $1.38 share payback to shareholders this time last year.
Additionally, their underlying earnings have increased 12% to US$4.4 billion — very much in line with consensus estimates.
However, for picky investors there a few issues that could put their stock price under pressure, which shouldn’t be overlooked. That includes a 38% drop in free cash flow to US$2.9 billion for the six months ending 30 June 2018, and a 34% increase in capital expenditure.
However, there are rumours circulating that the Mongolian government wants to reopen the negotiations surrounding the 2009 investment agreement, in order to bring revenue forward.
Despite these concerns, Rio Tinto is sticking to the production guidance given at their last quarterly report, saying their capital expenditure will be sitting at US$6.5 billion in 2020, a rise from their original estimate of US $6 billion.
I guess we’ll have to wait and see.
What does this mean for investors?
Despite the price drop, it’s not all bad news for Rio, as you can see.
Investors may benefit from taking advantage of the price dip — there are few blue chip stocks outside resources that are this well placed to grow revenue and profits. Plus, having a couple of spare billion in the bank isn’t a bad thing, either.
We’re excited to see what happens next.
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