Rio Tinto Could Start a $10 Billion Share Buyback in 2011, Citigroup Says

Rio Tinto Group, the world’s third- biggest mining company, could start a $10 billion share buyback next year and still sustain record forecast spending on its mine projects, according to Citigroup Inc.

Such a buyback would be 6 percent earnings per share accretive, Citigroup analysts led by London-based Heath Jansen said in a report dated yesterday.

Chief Executive Officer Tom Albanese has slashed debt that ballooned after the company’s $38.1 billion takeover of Alcan Inc. in 2007 and boosted profits aided by higher prices for metals, iron ore and coal. In August, Rio reported first-half income more than tripled to $5.85 billion.

“We expect Rio to move into a net cash position in 2011,” the analysts wrote. “This will allow the company to look at growing through M&A or returning cash to shareholders through buybacks.”

The company may have net cash of $9.4 billion in 2011, rising to $23.9 billion in 2012, Citigroup estimated. Rio has forecast spending on its projects, including expanding its iron ore operations in Western Australia, of $9 billion next year, 50 percent more than estimated in 2009.

“Our priority is investing in value adding growth,” Rio Tinto said today in an e-mailed statement. “Additionally we target a single A credit rating and are committed to resuming our progressive dividend policy over the longer term.”