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Rio Tinto shares drop 4.3% as a $1 billion special dividend is revealed

Here’s everything we learnt from Rio Tinto’s 2019 interim results.

Rio Tinto share price Source: Bloomberg

Even though Rio Tinto beat underlying earnings estimates and announced plans to return a record $3.5 billion to shareholders – the mining giant's share price still fell at the open, as renewed US-China trade concerns hit equities across the globe.

In a surprise announcement overnight, US President Donald Trump tweeted that additional tariffs of 10% would be slapped on $300 billion of Chinese goods.

When the ASX opened this morning and as investors digested this news, Rio Tinto Limited's share price fell as much as 4.3% – to below A$94 per share.

Rio Tinto: the broader picture

For those following Rio Tinto Limited in the last few months, the dip following the release of the company’s interim results is not wholly unexpected – though Trump’s surprise tariff tweet has almost certainly added fuel to the fire.

As we previously reported, volatile weather conditions, operational difficulties and the announcement that Brazilian mining giant Vale would resume production have all weighed on Rio Tinto’s share price of late.

Even as such challenges mount and as the outlook for iron ore sours, Rio Tinto still delivered impressive interim results.

On the top-line, Rio Tinto posted consolidated sales revenue of $29.7 billion – a 9% increase, year-over-year.

Underlying first-half earnings were also strong: coming in at $4.93 billion, beating average analyst estimates of $4.86 billion, according to Bloomberg Data.

Net earnings, by comparison came in 8% lower at $4.1 billion – driven by a $800 million write down of the company’s Oyu Tolgoi project.

Speaking of these first-half profits, Rio Tinto’s CEO, J-S Jacques said:

‘This increase reflected higher iron ore prices which more than compensated for lower volumes and higher costs.’

Record shareholder returns

Though Rio Tinto Limited (ASX: RIO) beat on underlying earnings, it failed to meet analysts interim dividend expectations.

Regardless, the mining giant announced the intention to return a record $3.5 billion to investors after the market closed yesterday. Included in this is an interim dividend of 151 cents per share ($2.5 billion) and a special dividend of 61 cents per share ($1.0 billion).

By comparison, analysts were expecting an interim dividend of 167 cents per share, according to Bloomberg Data. In saying that, this dividend miss is offset when you factor in the combined special dividend and the interim dividend.

Speaking of the company’s commitment to shareholder value creation, Rio Tinto’s CEO, J-S Jacques maintained that:

‘Our world-class portfolio and strong balance sheet serve us well in all market conditions,’ further adding that ‘our delivery is in evidence today, with our record interim returns of $3.5 billion.’

Rio Tinto: the outlook moving forward

Rio Tinto (ASX: RIO) highlighted progress on a number of core projects in its interim results.

Though slightly behind schedule, the company has continued to make progress on its Oyu Tolgoi copper project.

Once complete, Oyu Tolgoi would be one of the world's largest copper mines. First production could commence as early as May 2022.

The company has also taken steps to consolidate its iron ore operations, with it being pointed out that Rio Tinto is working hard to:

‘Optimise performance across our iron ore system, following the operational challenges which emerged in the first half.’

Secondly, investors may have been somewhat disappointed to find out that the company's 2019 Pilbara shipments guidance has remained unchanged. Rio Tinto previously reduced their iron ore production guidance off the back of volatile weather conditions earlier this year.

Finally, as the company noted in its own half-year results, trade tensions have continued to weigh on global industrial growth.

Now with Trump again planning to increase tariffs on Chinese goods, investors are liable to question: just how impacted will the global industrial outlook be in the next 12-months and beyond?

Year-to-date, the Rio Tinto Limited share price has moved up a solid 27%.

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