Rio Tinto could afford to spend $5-billion a year buying back shares, Neil Goodwill, an analyst at the Australian affiliate of the world’s most profitable investment bank said in a note to clients dated October 12. Rio Tinto may complete its current $4 billion return of capital by year-end, Credit Suisse said in August.
A five-year rally in metals, owing to sur- ging Chinese demand, has boosted profits and spurred mining companies to make more than $100-billion of takeover offers this year. A 16% fall since May in the Reuters-Jefferies CRB Index, which tracks 19 commodities, sparked by concern over slowing US growth, has cut 17% off Rio Tinto’s share price.
“With Rio only valued by the market at around $70-billion, even the case for a cash bid for Rio would now seem plausible, highlighting how cheap the stock is,” Goodwill said.