(Bloomberg) -- Rio Tinto Group, the world’s second-biggest mining company, plans to spend $2 billion in a share buyback after reporting full-year profit that beat estimates as higher output and lower costs countered a slump in commodity prices.

“We’ve repositioned the business,” Chief Executive Officer Sam Walsh said in an interview with Bloomberg Television. “We are sitting here today with probably the strongest balance sheet of any of the major mining companies.”

The decision to buy back shares comes six months after Walsh described the company as a “cash machine” following a cost-cutting drive and debt reduction plan. It also follows Rio’s decision to fend off smaller rival Glencore Plc, which approached it about a possible merger last year.

Underlying profit dropped 9 percent to $9.3 billion in 2014, London-based Rio said Thursday. That compares with the $8.97 billion average of 26 analyst estimates compiled by Bloomberg. Estimates for the buyback before the release ranged from $1 billion to $2.5 billion, according to forecasts from five analysts.

“The business is certainly healthy, the results are good and they delivered on what they said they were going to do but the outlook for me is not healthy,” Richard Knights, mining analyst at Liberum Capital Ltd. in London, said by phone. “The low-hanging fruit has been picked in terms of spending, cost reductions and releasing working capital. It will get more difficult from here as we expect continued top-line pressure.”

And:

Rio shares climbed 3.2 percent to 3,065.50 pence by 2:42 p.m. in London trading. In November, Walsh said Rio would “materially increase” returns to investors and today the company raised its dividend 12 percent to 215 cents a share for the year.

Net debt fell 31 percent, or $5.6 billion, to $12.5 billion at the end of last year. Declines in the oil price as well as a lower Australian dollar have helped Rio trim its mining costs. The company estimated a further cut to its costs of $750 million this year.

David Fuller's view

This is a brave statement from wise Sam Walsh but he has done well in a very tough environment.  Cutting net debt by nearly a third, raising the dividend and announcing a $2bn share buyback is no small achievement. 

The saving graces for Rio Tinto Plc (RIO LN) and other top mining firms are technology and good resources.  Technology is the newer factor and in this century it has made miners vastly more efficient than ever before. 

I am a long-term investor, having owned Rio for many years.  This Autonomy sells at an estimated p/e of 12.12 and now yields 4.93% according to Bloomberg.  Moreover, the 5-year net dividend growth is 26.26%, so investors are paid for their patience.  While encouraged by the latest bounce from the £26 region, I have not been adding to this position because it is not sufficiently benefitting from the expanding global middle classes theme.  This drawback is reflected by lower rally highs over the last four years and counting.  Nevertheless, it would be surprising not to see an eventual, cyclical late catch-up move when global bull markets are more overextended.