MENU

Rio Tinto Limited (ASX:RIO) share price surges as miner gears up for another $1.5bn capital return

The share price of Rio Tinto Limited (ASX: RIO) is defying weakness in the sector as the world’s largest iron ore miner announced the completion of a billion-dollar share buyback and the impending start of another.

Rio Tinto’s share price surged 2.3% to $83.11 in morning trade when BHP Billiton Limited’s (ASX: BHP) share price and South32 Ltd’s (ASX: S32) share price led the materials sector lower as the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index fell 0.1% in the red.

Rio Tinto is probably supported by “top-up” buying after management announced that it has successfully bought back $2.9 billion of its shares in the latest off-market buyback where shareholders tendered their shareholdings at set discounts.

Shareholders who were successful in selling their shares back to the miner are probably jumping back in to buy back shares to top-up their shareholdings ahead of the start of Rio Tinto’s on-market share buyback.

The miner said it will spend up to US$1.1 billion ($1.5 billion) buying back its own shares on the market commencing February 28, 2019.

Interest in the off-market buyback was so strong that Rio Tinto managed to secure the biggest discount of 14% from shareholders at a price of $69.69 a share.

The number of shares tendered exceeded what Rio Tinto was willing to buyback and so it has applied a scale-back of 58.27% after the first 70 shares from each tender.

The scale-back was anticipated but shareholders had to hold off their top-up buying until they knew how much of their shareholding would be accepted by the miner.

Shareholders with 30 shares or less after the tender process will have their shares bought back in full. This protects shareholders from being stuck with a small parcel of shares as a result of the capital return.

Shareholders are happy to sell at such a large discount as the amount they will receive from the sale will exceed the buyback price due to the attaching franking credits.

Those that benefit the most from such buybacks tend to be SMSFs, institutional investors and those with low marginal tax obligations.

Shareholders will be paid on November 19 and I suspect we could see another round of buying then.

Rio Tinto has bought back 41.2 million of its shares in the off-market tender. This equates to 10% of its ASX-listed stock or 2.4% of its total stock if its UK shares are included).

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2019."

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Rio Tinto Ltd., and South32 Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.