Australia's biggest miner Rio Tinto (ASX: RIO) has reported its highest annual underlying earnings since 2014, beating market expectations on robust commodity prices, and announced a bumper dividend on divestments and an upbeat iron ore outlook.

Underlying earnings for the 12 months ended December 31 rose to US$ 8.81 billion (A$ 12.27 billion), from US$ 8.63 billion a year earlier. The figure was significantly higher than a consensus estimate of US$ 8.47 billion compiled by Vuma Financial.

Rio, flush with cash from recent sale of its Grasberg copper mine in Indonesia and other non-core assets, declared a final dividend of US$ 1.80 per share and a US$4 billion special dividend of $US2.43 per share.

"We have once again announced record cash returns to shareholders," chief executive Jean-Sebastien Jacques said on Wednesday, pointing to the miner's "value over volume" strategy.
Returns of US$ 7.2 billion from a series of divestments also erased Rio Tinto's net debt, leaving it with a net cash position of US$ 255 million.

Iron ore prices have surged after last month's deadly collapse of a dam operated by Vale SA in Brazil that forced the world's top iron ore miner to cut production, likely boosting earnings this year for its global rivals.

Rio's Australia-listed shares have risen 21 per cent so far this year, compared with a near 15 per cent jump for its larger, but more diversified, peer BHP Group (ASX: BHP).

The disaster has considerably raised sthcrutiny of safety standards throughout the industry, in particular tailings facilities. Rio has some 100 tailings facilities across 32 sites.

Rio, which also mines aluminium and copper, said in last month's fourth-quarter production update that it expects Pilbara iron ore shipments in 2019 to be between 338 and 350 million tonnes. It maintained that guidance in its results statement.

Last week, the world's biggest miner BHP kicked off the reporting season for global majors and reported a drop in first-half 2019 profit citing rising costs.