Rio Tinto announces new $3.2 billion share buyback, stock rises

(Reuters) - Global miner Rio Tinto will return $3.2 billion to shareholders from its sale of Australian coal assets this year in addition to existing buyback programs, it said on Thursday.

FILE PHOTO: Chimneys billow smoke at the Rio Tinto alumina refinery in Gove, also known as Nhulunbuy, located 650 km (404 miles) east of Darwin in Australia's Northern Territory July 16, 2013. REUTERS/David Gray/File Photo

The news helped to drive Rio Tinto's London share price RIO.L nearly 2 percent higher by 0927 GMT and pushed up the Australian listing RIO.AX by 3.5 percent.

Across the mining sector, a trend to hand money back to shareholders has gathered steam following a recovery from the mining and commodity crash of 2015-16 and pressure from investors not to waste growing piles of cash on buying up assets that may never deliver returns.

In its latest move, Rio Tinto, which has already returned more money to shareholders than its peers, said it will conduct an off-market share buyback for up to 41.2 million shares in its Australian entity Rio Tinto Ltd, worth about $1.9 billion, and further on-market purchases of London’s Rio Tinto plc shares, bringing the total to $3.2 billion.

Previous buybacks have favored the London arm of the dual-structured company but industry sources said it balanced out over time.

Rio Tinto had already announced plans in August for a $4 billion buyback.

“Returning $3.2 billion of coal disposal proceeds demonstrates our commitment to capital discipline and providing sector-leading shareholder returns,” Rio Tinto Chief Executive Jean-Sebastien Jacques said in a statement on Thursday.

The funds come from the proceeds of Rio Tinto’s exit from coal.

Early this year, it sold the Hail Creek coal mine and Valeria coal project to Glencore GLEN.L, Winchester South to Whitehaven Coal WHC.AX and the Kestrel coal mine to private equity manager EMR Capital and Indonesia's Adaro Energy Tbk ADRO.JK. In total, the assets raised $4.15 billion.

Jason Teh, chief investment officer of Sydney-based Vertium Asset Management, said the buyback would be taken favorably by the market, adding that there could be more to come.

“Because their balance sheet is in such a pristine state, every time they do an asset sale they are normally just returning proceeds back to shareholders,” he said.

Jacques said the focus would remain on managing the company’s portfolio to get rid of assets that did not provide the best returns over time.

Rio Tinto has agreed to sell copper assets in Indonesia to Freeport-McMoRan Inc FCX.N as part of a series of complex deals. It is unclear when that sale will be completed.

Norsk Hydro NHY.OL and Rio announced last week they had dropped a plan for Hydro to buy Rio Tinto assets, including an aluminum plant in Iceland, after approval from European regulators took longer than expected.

Rio’s sale of its Dunkirk aluminum smelter in northern France announced in January has also yet to be finalised.

BMO Capital Markets said in a note Rio’s buybacks amounted to a shareholder return well ahead of its peers and the company was its “top pick” among the diversified majors, but would eventually have to find other options to drive value, including possible acquisitions.

Big miners have been struggling to find good assets to buy and even Glencore GLEN.L, renowned for adventurous merger and acquisition activity, has said it will focus on buybacks.

Additional reporting by and Melanie Burton in Melbourne; editing by Richard Pullin and Adrian Croft