Rio Tinto to return $4bn to shareholders

Rio Tinto, the mining giant, is to return $4bn (£2.2bn) to shareholders after the boom in the sector has left it awash with cash. The company said that even after ramping up investment, it could not spend all the money flooding in from soaring commodity prices and an increase in its production volumes.

Leigh Clifford, Rio Tinto's chief executive, said: "We're spending like a man with seven arms... [but] it is easy to be profligate when you have a lot of dollars in your pocket."

The company will pay a special dividend of $1.5bn, which surprised the market, and will spend $2.5bn on a share buy-back programme. Mr Clifford said the cash hand-back did not close off options for Rio Tinto. But he was unimpressed with the idea of spending the money instead on buying other companies - the mining sector has seen a number of large deals. "Acquisitions add no new capacity and you have to be very, very, careful that you do not destroy shareholder value," he said.

He pointed out that Rio Tinto invested $2.6bn last year and that in 2006 and 2007 it expected to invest a further $3bn each year.

The company reported financial figures for 2005, which showed underlying profits of $4.96bn, a 118 per cent jump on 2004. Cash flow from operations was $8.26bn, an 85 per cent increase from the previous year. Rio Tinto said that not all the gain came from higher commodity prices. High production contributed $1.14bn to the rise in profits.

Mr Clifford saw no short-term end to the record prices seen for commodity products. He said the continued strong growth in China, better results of Japan and a healthy economy in the US, meant demand remained high.