Rio Tinto unveils plans for $2bn share buyback as quarterly profits beat estimates

12th Feb 2015 17:01

Mining giant Rio Tinto unveiled plans to invest $2bn (£1.30bn) in a share buyback, after the company's annual profit beat estimates.Despite a sharp drop in commodity prices, higher production and lower costs drove full-year profits past expectations.Underlying profit for 2014 fell 9% to $9.3bn, against the $8.97bn reading analysts had expected."We've repositioned the business," group chief executive Sam Walsh said in an interview with Bloomberg Television."We are sitting here today with probably the strongest balance sheet of any of the major mining companies."Net debt fell 31% to $12.5bn at the end of last year, with the group citing a decline in oil prices and a lower Australian dollar as the main factors contributing to a decrease in costs and added it expects to cut expenses by a further $750m in 2015.According to Macquarie Group, miners will slash spending by $20bn in 2015, while Rio Tinto expects commodity prices to fall even further as economic growth in China is set to decline from 7.4% during the last 12 months to 7%.The price of iron ore collapsed 47% in 2014 and it extended its decline by a further 13% on the back of a growing surplus, falling to $61.20 on Monday, its lowest level since May 2009.Andy Xie, a Shanghai-based independent economist and former Asia-Pacific chief economist at Morgan Stanley, last week warned that it may drop to $30 a metric ton this year, as low-cost supplies increase and steel demand in China declines.However, Walsh dismissed the suggestion as "fantasy land"."That's fantasy land. It simply can't happen," he said."There are very wild forecasts out there that quite frankly just can't come to pass otherwise it's going to be very lonely for us as the lowest-cost producer in the world."On Thursday, Rio Tinto shares closed up 3.19% to 3,066.32p.