Out Of Office

Image source: Blue Flourishes and Andrey_Kuzmin on shutterstock

What's going on?

Rio Tinto reported a bumper 2021 on Wednesday, so let’s hope the miner’s most committed employees have earned themselves a bit of a break.

What does this mean?

The prices of essential commodities – think metals, food, and energy – went through the roof last year, as a buckling supply chain struggled to go toe to toe with sky-high demand. That played right into Rio Tinto’s hands: the miner makes around 80% of its money from steelmaking ingredient iron ore, which hit its own record high during the boom. So it follows that Rio’s profit rose 72% last year versus the year before to hit $21 billion – a new record for the miner. But all that cash won’t be sitting idle, with Rio also announcing that it’ll be paying investors $7.7 billion worth of dividends. That’ll bring the company’s payouts for the year to nearly $17 billion – the second-biggest total in the history of the FTSE 100.

Why should I care?

For markets: Investors strike gold.
Rio Tinto isn’t the only miner spreading the love: BHP said last week that it’d be paying its biggest half-year dividend ever, while Glencore announced a $4 billion payout a day later. That might be why analysts are expecting the industry’s payouts to represent almost a quarter of all those made to UK investors last year – a far cry from the 4% they represented in 2016 (tweet this).

The bigger picture: The industry has been shifting.
This substantial uptick in payouts over the last few years is a sign of a broader transformation in the industry. Miners have deliberately been moving away from sinking money into risky megaprojects, which can take a long time to actually translate into gains for investors. Instead, they’ve been more focused on paying off debt, putting money directly into shareholders’ hands, and venturing into smaller projects – like copper and lithium mining – that are essential to the clean energy transition.

Originally posted as part of the Finimize daily email.

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