Rio Tinto Could Jump $10 Higher By 2013

| About: Rio Tinto (RIO)

When you cross the border into Namibia, your first stop would probably be Fish River Canyon. It is the world's second largest canyon (the largest, of course, is the Grand Canyon). The arid and stark beauty of the canyon leaves the occasional traveler mesmerized and confused as it doesn't look anything like the Southern Africa that most of us imagine. To add to this surprise, as one drives through the desert and passes sand dunes that never seem to end, one encounters Swakopmund, a small German colonial town nestled on the Atlantic coast of Namibia.

Its tree-lined avenues, German architecture, impeccably maintained streets, and excellent cafes and bars leave you wondering if you are in a German town or in a corner of Africa. The city's historic area houses extremely well-preserved buildings that not only reveal a colonial history, but also the Namibian government's approach toward safeguarding its monuments, architecture, and colorful past. Swakopmund is known as the adrenalin capital of Namibia today, thanks to the presence of facilities for extreme sports.

This idyllic town has witnessed enormous change in terms of infrastructure and development, thanks to the discovery of uranium at Rossing, about 70 kilometers away. It is now developed as the world's largest opencast uranium mine. Uranium from here is exported to the United States and Europe, and a small part of it is exported to Asian nations, including China. Rio Tinto (NYSE:RIO) holds a 65% stake in Rossing Uranium and is responsible for all the developments that are taking place in this faraway Namibian city. Rio Tinto has continued to invest in uranium deposits all over the world.

The company did sell its 14% stake in Husab to China Guandong Nuclear Power Corporation (CGNPC). Rio's share was worth $330 million. It probably wasn't a very good idea to sell the share to a Chinese entity, especially when nuclear concerns are rife around the world. An interesting twist to the story is that Iranian Foreign Investment has a share of 15% at Rossing Uranium, leaving both Iran and China in favorable positions in Namibia. I strongly feel Rio Tinto could have avoided this situation by refusing to sell its share to CGNPC and by offering more money to Iranian Foreign Investment and by buying its entire share at Rossing Uranium. However, that does not leave Rio Tinto in a soft position.

We must remember that uranium stock took a severe blow last year when the Fukushima incident took place in Japan. The monstrous earthquake and tsunami left the Fukushima plant in a disastrous situation from which the Japanese administration is still trying to salvage itself. Such disastrous consequences are rare, and it happened not due to human error but because of a natural disaster of unprecedented intensity.

Naturally, Rio Tinto has learned from this incident that it better upgrade its own facilities in Namibia and elsewhere. Rio Tinto lists safety and precautions as its No. 1 priority in its Rossing Uranium manifesto. A look at that document is enough to instill confidence in investors that it really knows what it is up to. While Rio Tinto could have stopped the Chinese and Iranians from accessing Namibian uranium sites, it is just a company and not an entire country.

Namibia has attracted other uranium companies, like Cameco (NYSE:CCJ). Cameco stock was recently downgraded and revealed disappointing results. BHP Billiton (NYSE:BHP) is doing well in Australia and has been grabbing land in order to ensure smooth uranium mining. However, it does not cross Rio Tinto's path in Namibia. Readers may remember that Rio Tinto's ambitions in Canada helped Denison (NYSEMKT:DNN) to raise its own stock value. Vale (NYSE:VALE), on the other hand, seems to be a safe investment option to those who are mulling over top uranium companies.

Rio Tinto has faced several problems in Namibia, including strikes in July 2011. However, these issues were settled and currently the Rossing facility produces 3% of the world's uranium. Not only that, Rio Tinto also brought in $2 billion in foreign exchange to Namibia, helping the nation to acquire foreign exchange that is so desperately needed in times of economic fluctuation. The company also spent N$81 million on skills development in the last five years. These skills have been passed on to a generation of Namibians who would now be well equipped to handle the nation's growing uranium industry.

Rio Tinto also spent $2.6 billion in the Erongo Region and Swakopmund. With such high levels of spending, investment and earning foreign exchange for the host country, Rio Tinto has established itself as a major played in Southern Africa, which includes South Africa, Namibia, Swaziland, Mozambique and Botswana. Rio Tinto has uranium related operations in Canada, Australia and Namibia. Rio Tinto continues to work with other agencies in neighboring uranium fields including Husab, though it is at a minimal level at the moment. The company states that in the future it would like to grow its uranium development further in Namibia.

All this leads us to the conclusion that Rio Tinto is not giving up its uranium ambitions in Namibia anytime soon, and has only begun the process of consolidating its base there. This will act as a buffer to its uranium endeavors in Australia and Canada as well.

In the next few months, I expect Rio Tinto to invest more money in Namibia and elsewhere in Africa, as it has already understood the dynamics between governments, people and business establishments in Africa. It is only a matter of time that we see further positive reports reaching investors from African nations regarding uranium exploration. At the end of the day, all that matters is stability, investment and optimism. I see all that in Rio Tinto's Namibian manifesto. I expect Rio Tinto to jump up to the low $50 range by late 2012. The stock is currently trading around $43.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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