Here is JAMES PENN’s most recent Business View column

The giant mining company Rio Tinto delivered a near perfect set of annual results for 2017.

Cash from operations was up 64% to $13.9bn, with free cash flow (after deduction of capital expenditure) also up strongly $9.6bn.

The company announced a 70% increase to the dividend, totalling $5.2bn, the biggest in the company’s 145 year history, and a $1bn increase in its share buy back programme.

Net debt was reduced from $9.6bn to $3.8bn – hugely impressive for a company that looked overstretched during the downturn in the Chinese economy a couple of years ago.

Overall, it was an ‘A star’ set of results, yet what did the share price do? Virtually nothing, and at the time of writing a day later is about 2% lower than before the figures came out.

All the good news had, of course, been ‘discounted’ a long time before. The strong performance comes as no surprise, and the shares have had a good run since bottoming at £15 in January 2016 (they currently stand at just under £38).

In that time the price of iron ore has recovered from $38 per tonne in 2015 to just under $70, while the price of copper and aluminium, other important minerals for the group, have also rebounded strongly.

This is a far cry from two years ago, when the company announced that it would halve its 2016 dividend. The upswing in Chinese growth and the commodities market came just in time, permitting it to increase the final dividend payment after halving the interim divi (in contrast, BHP Billiton cut its 2016 dividend by three quarters), and to ‘delever’ or reduce debt.

Rio Tinto’s name may reference a region in South Western Spain, but the most important part of the world for the company has long been Western Australia, and its stellar performance is largely driven by its iron ore division, the source of 70% of profits.

The barren red desert of the Pilbara may look like the surface of Mars, but has helped Rio to become a ‘cash machine’, as many analysts put it after the results.

Mechanisation and economies of scale, plus reinvestment into the rail networks connecting the mines to the northern ports of Australia, have allowed average unit costs per tonne of iron ore to fall to just $13.4, lower than last year’s $13.7.

A few years ago unit costs looked amazingly low at $17, but the company has managed to get them down even lower. In contrast, lower quality Chinese ore was being produced at $90 per tonne, so there is really no comparison.

As a result, Rio managed to achieve iron ore EBITDA margins of 68%, an exceptional figure more normally associated with high end tech or pharmaceutical companies. By comparison, Apple made a margin of that level of its new iphone X in its last quarter.

Cost cutting continued to play a role, with an additional $0.6bn of cuts in the year, taking the total cost cuts since 2013 to $8.3bn.

But the rebound in the price of commodities was the main factor behind the figures, accounting for $4bn out of the $8.6bn of underlying earnings.

Much depends from here on what happens in China. The clampdown last year on steel capacity and pollution in China, and the high steel price, favoured Rio and the other Australian producers, which produce the higher grade 62% ore.

The global economy needs to keep chugging along in its ‘synchronised upswing’ for Rio to keep churning out those mega-dividends.

But there have also been strong elements of self help in this recovery story.

The opinions stated are those of the author and should not be taken as investment advice. Any recommendations may not be suitable for all, so please contact your financial adviser for further guidance. The value of investments can go down as well as up.