Rio Tinto launches more buybacks, brought to you by the exit of coal

Stock

Rio Tinto (RIO) $77.87 as at 20/09/2018

Event

The wait is finally over for Rio shareholders as the company announced how they plan to return capital from the coal asset sales back to its investors. Rio had for a long time signalled that the proceeds would make it to the pockets of shareholders, and today launched a $US 3.2b ($AUS 4.4b) buy back, comprising of on and off market components. Up to $US 1.9b worth of the Australian listed shares will be bought back, which will largely be paid for through a fully franked dividend as the miner aims to reduce its franking balance.

We always knew this announcement was coming – whether it was a buy-back or special dividend – however the market still liked the confirmation and the stock has rallied over 3% today outpacing most peers.

Rio Tinto (RIO) Chart

Market Matters Take/Outlook

We recently bought Rio after it completed our technical retracement target back to $71. It has rallied over 6% in the past 2 days. We remain keen on Rio and the buyback should support the stock. We are also looking to grow resources exposure at this late stage in the cycle.  BHP will be in a similar situation in November when funds from their US shale sales start flowing through.