Our largest iron ore miner could be a gift that just keeps giving. Rio Tinto Limited (ASX: RIO) signed a binding agreement yesterday to sell its stake in its Rossing uranium mine for up to US$106.5 million ($150 million). While the miner didn’t say what it will do with the proceeds, it’s expected that much of the cash from the sale will find its way back to shareholders. The news may not help Rio Tinto’s share price though as China’s steel prices crashed into a bear market yesterday with the most actively traded rebar contract falling 21% from its August…
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Our largest iron ore miner could be a gift that just keeps giving. Rio Tinto Limited (ASX: RIO) signed a binding agreement yesterday to sell its stake in its Rossing uranium mine for up to US$106.5 million ($150 million).
While the miner didn’t say what it will do with the proceeds, it’s expected that much of the cash from the sale will find its way back to shareholders.
The news may not help Rio Tinto’s share price though as China’s steel prices crashed into a bear market yesterday with the most actively traded rebar contract falling 21% from its August peak to around US$504 a tonne.
Chinese steel mills are the biggest customers of Rio Tinto and a bear market is defined as a fall of 20% or more.
Many happy returns
But the prospect of more capital returns from Rio Tinto could offset some of the negativity and it comes hot on the heels of the miner’s recently completed US$2.1 billion off-market share buyback that’s on top of its US$1.1 billion on-market share buyback.
Rio Tinto will receive an upfront cash payment of US$6.5 million from China National Uranium Corporation Limited (CNUC) for the sale of its entire 68.6% stake in the Namibia mine.
The miner is entitled to contingent payments of up to US$100 million over the next seven calendar years depending on the uranium spot price and Rossing’s net income over the period.
What this means is that shareholders shouldn’t expect a big one-off capital return from the Rossing transaction but a potentially steady stream.
It’s unclear how this cash will find its way into shareholders’ pockets, but a special dividend linked to the contingent payment to bolster the miner’s regular dividend payouts cannot be ruled out.
I believe we could see more asset divestments from Rio Tinto as it looks to withdraw from countries deemed to have high sovereign risks. The recent divestment of its stake in the Grasberg mine in Indonesia is another example.
This isn’t to say that Rio Tinto won’t consider making acquisitions in safer jurisdictions and that means not all of the proceeds from asset sales will wind back in the hands of shareholders.
However, I do think we will see a further expansion in the miner’s capital return program through 2019 and Rio Tinto isn’t the only one focused on handing cash back to investors.
BHP Billiton Limited (ASX: BHP) is also embarking on a multi-billion dollar capital return program and this makes the mining sector the most generous gift-giver on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO).
This isn’t surprising as our largest miners are best placed financially among blue-chips to undertake such returns.
We certainly shouldn’t expect any meaningful handouts from our embattled big banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) even though they are mostly looking at divesting non-core assets as well.
But our major miners aren’t the only generous gift-givers on our market. The experts at the Motley Fool have looked at the balance sheets and outlooks of a range of stocks from other sectors, and they’ve found three high dividend payers for 2019.
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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, National Australia Bank Limited, Rio Tinto Ltd., and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. 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.