Australian mining giant Rio Tinto Limited (ASX: RIO) today announced it had successfully undertaken the local component of its $US2 billion capital return programme.
Rio, which is dual-listed on the ASX and London Stock Exchange, is to buy $500 million of its Australian shares off market at a discount to the market price of up to 14% – representing a buy-back price of $48.44.
Today, Rio also declared it would continue to undertake its larger on-market buy-back of its UK-listed shares until the end of the year, which will amount to approximately $US1.575 billion.
The Australian component was heavily oversubscribed, with a 91.02% scale back of tenders.
Shareholders who elected to tender their shares for a discount of 13% or less, will not have any shares bought back.
Those tendering shares at the maximum 14% discount will have a minimum of 85 shares bought by Rio, before the scale back takes place.
However shareholders who have less than 35 shares remaining as a result of the buy-back will have their tender taken-up in full.
Rio's buy-back comes at a time when prices of its key commodities are under threat and it says proceeds from the capital management initiative will be credited to Australian bank accounts on 15 April 2015 (provided shareholders have direct credit authority through their share register).
Should you buy or sell Rio Tinto shares?
Shareholders choosing to sell their shares through the buy-back will receive a per unit price which is less than the current on market price but will be compensated with tax-effective franking credits. The fact the buy-back was so heavily oversubscribed could be a result of investors recognising the bleak industry outlook for all iron ore miners.
With the iron ore price down some 63% since the beginning of 2014 and Rio's share price down 16% over the same period, the miner could come under further pressure in the near-term if the iron ore price continues to fall.
This morning's unprecendented decision by junior West-Australian iron ore miner, Atlas Iron Limited (ASX: AGO), to suspend its own shares is testament to the fact that iron ore miners are under significant pressure.
Rio (its iron ore division accounted for 46% of revenues in 2014) might not go bust given its superior low-cost production profile, but it's certainly not a stock I'd want in my portfolio right now.
