Rio Should Boost Dividends as Cash Gains, RBS Says

(Corrects RBS profit estimate in fifth paragraph.)

Rio Tinto Group, the world’s third- largest mining company, should consider increasing its dividends because of its improving cash position, Royal Bank of Scotland Group Plc said.

“We believe the company is in a position to look at capital management,” analysts led by Lyndon Fagan said yesterday in a report. “Our preferred method of deploying cash would be through a material and sustainable increase in dividends.”

Rio, the world’s second-largest iron ore producer, yesterday reported a 6 percent gain in iron ore production in the December quarter to a record 50.1 million metric tons. The London-based company may wait until it announces its first-half profit in August before announcing any capital management plans, Fagan said.

The company is more likely to buy back its London-traded stock, which is trading at a discount to its Sydney-traded shares, he said. “Although Rio has said nothing as yet on this.”

Rio has moved from an “uncomfortable gearing level towards a net cash position,” he said. The company will hold cash of $28 billion next year, RBS said. The bank cut its net profit forecast for 2010 by 4 percent to $14.03 billion because of the rising Australian dollar and increasing costs in producing coal and iron ore. It also cut its 2011 forecast by 4 percent to $19.1 billion.

Floods in Queensland forced Rio to declare force majeure at four coal mines. This won’t be a “significant 2011 earnings impact,” Credit Suisse Group AG analyst led by Michael Shillaker said yesterday in report.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.