Rio Tinto PLC (LSE:RIO) has brushed off scandal after scandal to deliver record profits in the year to 31 December 2021, as well as a bumper boost to dividends.
US$7.7bn is going back to shareholders who stuck with the company through the multiple public relations problems of the past couple of years, while the actual shares themselves have been priced higher only once over the past thirty years – and that was last year.
So share price highs and record dividends – is it all downhill from here?
At this point, that’s an open question.
Rio has really benefitted from the exceptional circumstances surrounding the coronavirus crisis. Huge amounts of stimulus money have been injected into the world economy, and a significant part of that cash has gone on infrastructure spending – for which Rio Tinto supplies the raw materials.
So, exceptional times, exceptional gains.
Nevertheless, from an economic standpoint, the broad underlying picture also looks strong. Yes, Chinese growth is slowing, but while the latest GDP growth at around 5% looks modest compared to the huge doubled-digit growth levels we were witnessing a decade or two ago, the Chinese economy itself is now several orders of magnitude bigger.
Demand is unlikely to let up from that quarter any time soon, especially as China, like everyone else is driving hard towards greening its economy. True, China seems to be setting its own pace, but for a company like Rio that’s no problem.
Rio also sells huge amounts of coal into China, and with coal prices also riding high, there will surely be a strong pressure on the company to keep doing so, whatever the wider ESG issues.
The miner is also strong in copper, which is essential for the wiring inside all those clean and green electric vehicles, and in the making of much of the equipment that goes into ‘smart’ homes and offices.
So, while the current market conditions are exceptional, the underlying dynamics behind Rio Tinto’s success will remain in place.
Where it’s weak, though, is in ESG.
All major mining companies are positioning themselves these days as the providers of crucial raw materials for the green future, and Rio’s doing that too.
But it’s also been causing significant upset and heartache around the world with its boorish practices. It even commissioned a report which labelled it racist. It’s a company that wants to put on a hair shirt to appease the religious instincts of the woke mobs.
But while such immense riches continue to flow into its coffers, such posturing is difficult to pull off. And woe betides the company if by the time it manages to convince the world at large it is a force for justice and good it’s no longer making profits.
Because there’ll be no bailouts from the ESG brigade, however many of their boxes you tick.