Rio Tino announced the withdrawal of its operations from Russia today, after pressure mounted following over 300 major brands exiting the country this week.
The news came as the stock went ex-dividend, making a bumper payout to investors following a record year.
The Rio Tinto share price was down 6% in early afternoon trading on Thursday in London.
Russia ties
“Rio Tinto is in the process of terminating all commercial relationships it has with any Russian business,” a spokesperson from the mining group said in a statement today.
The mining company said it had no operational assets or employees to remove from the country, but that it would examine any business ties to Russia in its dealings.
With Rio Tinto’s share price diverging from an otherwise strong mining sector today, Rio shares are now appearing good value when compared to their peers.
Rio Tinto’s record-breaking 2021
Rio Tinto enjoyed a record-breaking 2021, with its dividend reported as the second-highest in the FTSE 100’s history.
The company reported a total dividend per share of 1,040c compared to 557c in 2020, and an EBITDA of $37.7 billion against $23.9 billion in 2020.
Rio Tinto celebrated a consolidated sales revenue of $63.2 billion compared to $44.6 billion in 2020.
“Rio Tinto’s headline grabbing $16.8 billion total dividend payment for 2021 tops the $15.7 billion in dividends paid by Shell in 2018,” said Russ Mould, analyst at AJ Bell after they reported in February.
“The big question now is whether Rio’s dividends and earnings have peaked in the current commodities cycle.”
“There are plenty of headwinds to suggest global economic growth may slow and forecasts would suggest Rio’s dividends are going to get progressively smaller over the next three years.”
Severing ties to Russian oligarchs
Rio Tinto is set to break its aluminium joint-venture with aluminium company Rusal, founded by Russian oligarch Oleg Deripaska.
The joint-venture was in Queensland Alumina Ltd (QAL), which is owned 80% by Rio Tino and 20% by Rusal through his parent company EN+ Group.
The activist investor group, the Australasian Centre for Corporate Responsibility (ACCR), commended Rio Tinto on its decision.
“Following Russia’s invasion of Ukraine, all Australian companies should sever relationships with companies owned or part-owned by oligarchs aligned with Russian president Vladimir Putin,” said ACCR director for climate and environment Dan Gocher.
“Rio Tinto and Worley should be commended for taking appropriate action.”
Oyu Tolgoi
The company cited previous hesitancy at cutting ties with Russia after noting that it was reliant on the country to provide diesel for Rio Tinto’s Oyu Tolgoi copper mine in Mongolia.
Rio Tinto’s has an indirect ownership of the Oyu Tolgoi through their 50.8% stake in Turquoise Hill Resources. Turquoise Hill Resources principal asset is its 66% ownership in Oyu Tolgoi, which owns the Oyu Tolgoi copper-gold mine.
The Oyu Tolgoi project has experienced a long embattled journey to gain the approval of the Mongolian government, with the parties finally reaching agreement in January 2022.
The project was estimated to produce approximately 500,000 tonnes of copper per year from 2028 to 2036 and an average of around 350,000 tonnes for a further five years, compared to 163,000 tonnes in 2021.
It will prove a substantial headache for Rio Tinto to source alternative means of powering Oyu Tolgoi without resources from Russia.
However, the Oyu Tolgoi and Turquoise Hill Resources only counted for $1.9bn of gross copper sales and $1.2bn in underlying EBITDA for 2021. This compares to group underlying $37.7bn.
This means although any disruption to the project will be painful, it will not materially impact group earnings in the short term.
If there is a scenario where the issues persist to 2028 – when production is forecast to ramp up to 500,000 tonnes per year – it could result in lost future earnings for the diversified miner.
Rio Tinto Dividend
Rio Tinto has paid a substantial dividend today comprising of a 306.72p ordinary dividend, and a 45.60p special dividend.
Immediate interest in Rio Tinto for income investors will now be diminished, but with a historical PE Ratio 5.8 and forward PE Ratio of 7.2, there is ample space for multiple expansion.
This makes Rio Tinto share particularly interesting, especially if the commodities super cycle accelerates in the coming years and the miner makes further investments in battery metals.