Rio Tinto offers big reward to investors

Rio Tinto Group will pay a much higher dividend than expected and buy back $500 million of shares after the world's second-biggest mining company reported its first gain in annual profit since 2013.

Higher iron ore prices boosted underlying profit by 12 percent to $5.1 billion in 2016, London-based Rio said on Wednesday.

The dividend fell 21 percent to 170 cents a share, reflecting a new policy aligning the payout to earnings.

"What a difference a year makes," Peter O'Connor, an analyst at Shaw & Partners Ltd in Sydney, said. "It's been a long grind back from the global financial abyss that Rio slumped into."

The global mining industry is rebounding from a downturn that forced some of the top producers to sell assets, cut costs and rein in spending after years of over-investment bloated balance sheets and left markets oversupplied.

Iron ore, Rio's main profit driver, surged 81 percent last year as Chinese stimulus supported local steel output, leading to higher demand for overseas ore.