The development comes in the wake of investors wanting greater return on investments from the world’s No. 2 miner.
Cash-flush Rio Tinto has stated it would be buying back an additional $2.5 billion worth of its shares, in a move that has come much earlier than investor expectations.
The development raises the world’s second biggest miner share buyback program to $4 billion following its announcements in February and August.
Coal mining companies have benefited not only from the recovery of prices but also from cost cutbacks undertaken years ago pressed by investors’ demand for greater returns.
“It’s not a surprise, but it’s probably a bit earlier than people factored in,” said James Eginton, an analyst at Tribeca Investment Partners, a Rio Tinto shareholder.
With the news reaching the market, Rio’s Australian shares rose by 1.4% on Friday, outpacing gains in rival BHP Billiton.
In June, Rio’s shareholders had approved the sale of a number of Australian coal interests to China-backed Yancoal Australia for $2.69 billion. At that time, a few shareholders had called that this flush money be utilized to increase dividends or be channelized in a share buyback scheme.
Among the world’s mining community, Rio Tinto is seen in a strong position since it carries little debt, and is raking in cash from low-cost iron ore operations. The company could also divest more of its assets.
“Next year capital returns are probably going to step up,” said Eginton.
Rio paid its highest interim dividend in August after first-half profit more than doubled.