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 profit 51 percent.
The producer joins rivals Vale SA and Glencore in trimming or abandoning dividend payments as a safeguard against the deepening commodities collapse. Rio’s payout for 2016 won’t be less than $1.10 a share, after it held the 2015 dividend at $2.15 a share, the London-based producer said on Thursday. Future payments will be 40 percent to 60 percent of underlying earnings, it said.
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Global mining companies are under pressure from investors and credit ratings 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 didn’t 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.”
Spending cuts
Changes to Rio’s dividend policy and planned new capital spending cuts of about $3 billion through 2017 may be enough to keep the ratings companies at bay, Evan Lucas, a Melbourne-based market strategist at IG, said by phone.
“Rio is in a solid position. The word is surviving, and they’re surviving better than most,” Lucas said.
The stock slid 6.9 percent to 1,644 pence at 8.33am in London trading.
Rio reported underlying profit fell to $4.5 billion in 2015, from $9.3 billion a year earlier, Rio said in its statement. That compared with a $4.6 billion average of 24 analyst estimates compiled by Bloomberg.
Rio changed its current policy of maintaining or raising dividend payouts each year to a more flexible approach, the producer said in the statement. Miners have been urged to cut payouts amid weak commodity prices, while Rio’s dividend yield has been targeted by investors as excessive.
Capital expenditure fell to $4.7 billion in 2015, the lowest since 2010, according to data compiled by Bloomberg. Spending is forecast at $5 billion in 2017, Rio said.
“The macro-economic consensus points to a moderate improvement in global growth in 2016, but volatility in financial and oil markets is a strong sign that macroeconomic risks abound, with geopolitical concerns also not far in the background,” the company said.
Rio reported a net loss of $866 million and will book impairment charges of about $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 touched the lowest in at least six years and industrial-metal prices plunged 27 percent, the worst performance since 2008, as China’s demand cooled.
* With assistance from Rebecca Keenan
BLOOMBERG