Market Insight

Iron giant Rio Tinto share price rises over 100% since Covid-19 low this time last year

Rio Tinto’s share price is around the highest it has been since its inception, with the company reaching its all-time high in early Q1 despite the problems of 2020.

A year after a low of £276.74 on 12 March 2020, as the realisation of Covid-19 hit the financial market, the company’s share price is now up more than 100%, reaching £557.8 on 29 March 29 close, with a triumphant all-time high of £619.17 in February 2021.

The last time the company’s share price was as high as late March 2021 was after the financial crisis of 2008 showing the company’s resilience to worldwide economic crises.

Financial clout and good management owing to performance and not just commodity ‘supercycle’

As Rio Tinto is benefitting from the knock-on effects of the pandemic, arguments could be made that this is due to a commodity ‘supercycle’. However, the company’s financial strength speaks for itself.

Net debt was down to just £0.5bn in 2020, compared to £2.6bn of 2019, whilst net cash generated from operating activities was up 6%, along with company cash flow and sales revenue both up 3%, all despite a pandemic that threatened to shut down industry worldwide.

A commodity ‘supercycle’ would lead to Rio Tinto struggling to maintain its share price long term but the financial strength of the company and its management through a worldwide crisis should stand it in good stead.

The company also implemented strong protocols to manage Covid-19’s impact on its employees, with screening programmes and changes to rosters to comply with regional guidelines, which helped maintain high levels of productivity.

All the while, the company’s injury frequency rate dropped from 0.42 to 0.37 per 200,000 hours worked, again showing the quality of management through a threatening pandemic.

Historic dividend payment for shareholders after iron ore surges

Following a turbulent year for financial investors, shareholders were treated to a historic final dividend payment from the company at £2.2186 per share, up more than 25% from the same period in 2020 and 20% higher than its last highest dividend in 2019. Over £4.7bn was paid back to investors after what could have been a difficult year for the company.

The surge of the price of iron ore, despite the pandemic, has undoubtedly been helped by China’s rapid recovery and its steel industry booming. The price of iron ore has risen by over 89% on the year, currently standing at $167 a tonne.

Market reacted well to new CEO after Australian mine controversy

At the start of the year, the company promoted former CFO Jakob Stausholm to CEO following a controversial mine expansion, which caused the destruction of an Aboriginal site in Western Australia.

The mine on this site was said to be worth an estimated £75m, an insignificant amount in the company’s reported £32.5bn revenue in 2020. The incident has, however, ruined relationships with local communities and even its shareholders.

Buoyed by the news of a new CEO however, the market reacted well to the appointment and Rio Tinto’s share price reached over £602.92 a week into 2021.

Former CEO Jean-Sebastian Jacques had his bonus cut by £2.7m and lost his position as a result of the incident, after stepping down due to pressure for accountability from Australia’s indigenous community.

// Main image credit: Rob Bayer/Shutterstock