Iron ore rally fires up Rio Tinto’s commodity merry-go-round – by Clyde Russell (Reuters U.S. – February 15, 2017)

http://www.reuters.com/

JOHANNESBURG Reuters) – Mining company super profits appear to be back on the agenda as earnings stand to be turbo-charged by higher-than-expected prices for iron ore and other metals, while volumes are also likely to be strong.

It’s the stuff of dreams for mining company bosses: high prices and strong production that can be sold into a rally.

Iron ore has been the standout so far in 2017, and as the steel-making ingredient surged to its highest level in three year above $90 a ton, so too will profits at the three major producers, Brazil’s Vale and the Anglo-Australian pair of Rio Tinto and BHP Billiton.

Investors have already had a little taste of what may come, with Rio raising its dividend above market expectations when it released results last week. The miner increased its payout to $1.70 a share and announced a $500 million share buyback, meaning it is paying out about 70 percent of its underlying earnings to shareholders.

If the company continues with that sort of payout ratio, shareholders may be in for a bonanza, so long as iron ore, which accounts for about 90 percent of Rio’s earnings, holds up. A back-of-the-envelope calculation looks something like the following:

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