What's going on?

Rio Tinto, one of the world�s largest mining companies, announced on Wednesday that it was profitable in 2016 � following a loss in 2015 � and that it would return $3 billion of cash to its shareholders!

What does this mean?

Mining companies like Rio Tinto have historically paid a relatively high cash payment each year to their shareholders (a.k.a. dividend), but last year Rio Tinto reduced its dividend after making a loss of almost $1 billion. This was due to a huge fall in the prices of commodities like iron ore and copper.


However, with the rebound in commodity prices over the past year (more on that below), Rio now feels that it is in a much stronger position and is increasing its dividend much more than anticipated.

Why should I care?

For markets: Virtually all miners have been helped by rising metal prices.

Rio Tinto, like other mining companies, has been reducing debt and selling parts of its business to overcome the difficult times it�s been facing. These efforts have been massively helped by the continued increase in the prices of metals like iron ore, which have almost doubled in the past year. Most miners have benefitted, including for example Glencore, which also recently increased its dividend.

The bigger picture: The big rebound in commodity prices could be precarious.

Prices for commodities like iron ore and copper began rebounding right around the time that China instituted huge measures to give its economy a boost, which leaves mining companies very vulnerable to a slowdown in Chinese demand. So far, China�s economy appears to, pretty much, be riding a wave of momentum from its rebound. However, there some signs of oversupply of commodities in China, which might hurt future demand.