Current shareholders should continue to hold Rio Tinto (RIO) long-term. This stock has an attractive dividend, a diverse well-performing portfolio, and adequate growth through recent headwinds. Interested investors may consider late fall as an opportune entry point to initiate a position on this top-tier mining firm. A bullish outlook on Rio Tinto's long term projection is supported by its commitment to cutting costs without sacrificing quality operations, economic recovery efforts in the east, and demands from emerging markets in developed regions looking towards the mid-term. Rio Tinto may see an uptick in its share price on the back of rebounding iron ore and copper prices.
Vale S.A (VALE), BHP Billiton (BHP), Freeport-McMoRan Gold & Copper (FCX) and Barrick (ABX) are comparable mining firms to Rio Tinto due to their diverse portfolios of assets. Rio Tinto's price is 22.2 times earnings, 1.62 times sales, and 1.66 times its book value. It has the highest price-to-earnings ratio among these mining firms. Vale's 5.6 price-to-earnings ratio is the lowest. Rio Tinto's current ratio is around 1.54 and its debt-to-equity ratio is around 0.34; Freeport-McMoRan's 0.21 debt-to-equity ratio is the lowest among these firms. Rio Tinto's annualized dividend is around $1.45 per share.
Rio Tinto's $2.24 EPS and 58.5% EPS decline in 2012 are the worst among the aforementioned firms. Its EPS is projected to increase around 15.7% in 2013. BHP Billiton's $5.77 EPS is the highest among these firms. Rio Tinto's sales have increased 21.9% through the past five years. Its 6.99% ROE, 15.76% operating margin and 8.45% profit margin are the lowest among these firms. Rio Tinto's float short is around 0.79% and its short ratio is around 3.97. Barrick's 1.1 short ratio is the lowest among these firms. Rio Tinto's beta is around 1.6 and its average volume is around 3.29 million. The stock has increased around 5.1% YTD and 6.3% over the past month.
In order to mitigate near-term headwinds and the effect of volatile price fluctuations, Rio Tinto is focused on reducing evaluation, operating, and sustaining capital costs throughout the firm's divisions. Thus far, Rio Tinto has been able to realize $500 million in savings per annum. Declining economic growth in emerging markets and China are the primary proponents for the recent volatile fluctuations in materials markets.
Iron ore prices have recovered slightly from recent lows, but Rio Tinto projects the volatility will continue in the near term. Rio Tinto also expects the stimulus packages in China to have an impact once they are initiated after the regime change is completed. Copper production for Rio Tinto is projected to increase in 2013, on the back of its Kennecott, Escondida assets, and from initiating production on its Mongolia asset. Rio Tinto's projected an average 13% annual increase of copper production from 2011 through 2015.
The recent regime change in Paraguay may have increased long-term risks on Rio Tinto's operations in the region. Since the change, Paraguay has passed its first income tax and has also resumed negotiations regarding the potential construction of Rio Tinto's $4 billion aluminum facility. Paraguay's new regime waived environmental impact, feasibility, and additional preliminary regulations in order to expedite the process. The Rio Tinto aluminum facility in Paraguay would account for the aluminum smelters in the UK, New Zealand, and Australia. This facility would be a significant development for Rio Tinto's aluminum division. The facility will benefit from substantial discounts in energy rates and increased tax credits. But, aluminum only accounts for 6% of Rio Tinto's total cash flow.
Rio Tinto's third quarter 2012 operations review showed record iron ore production at its Pilbara asset and increased production for copper, alumina, bauxite, and titanium dioxide, YOY. Third quarter iron ore production at Pilbara totaled 63 million tons, increasing 5% YOY. Rio Tinto's global iron ore production was 67 million tons, increasing 5% YOY. Copper production increased 21% due to increased ore delivered at the Escondida asset and projections for higher grades at both Kennecott and Escondida. Rio Tinto's third quarter alumina production increased 20%, bauxite production increased 13% and thermal coal production increased 21%, YOY respectively.
The 63 million ton iron production total and 5% YOY increase are strong proponents for Rio Tinto's current expansion of the Pilbara mine to 283 million tons per annum. Rio Tinto believes the declining rate of China's GDP growth may currently be bottoming out. The impending stimulus packages in China and demand for other key commodities as the country transitions into a more traditional consumer-economy bodes well for Rio Tinto's long term growth. Recent reports also indicate that Rio Tinto will target a 30% scale back on jobs and costs by the end of 2013, and doesn't intend to initiate any new projects in the near term.
Rio Tinto's first half 2012 consolidated sales revenue totaled $25.33 billion, decreasing from $29.05 billion YOY. China sales revenue totaled $8.5 billion, decreasing from $9.15 billion YOY. China accounted for 30% of Rio Tinto's sales revenue, Japan accounted for 16%, Other Asia accounted for 15.8% and the US accounted for 12.9%. Sales revenues declined in every region. Rio Tinto's first half 2012 net earnings totaled $5.88 billion, decreasing from $7.58 billion YOY. Despite its cost cutting initiative, Rio Tinto remains committed to reinvesting in operations to develop technological improvements to increase production and transportation efficiencies. Commodity market price movements had a $1.93 billion negative impact on Rio Tinto's earnings in the first half 2012.
In its first half 2012 release, Rio Tinto stated that demand and prices from emerging markets for industrial minerals will remain strong for the mid-term and long-term. The release cites confidence in its long-term outlook, the high quality pipeline, and its superior assets as well. The high priority Rio Tinto places on improving productions as a tool to mitigate costs is also a reason to be bullish on this firm long-term. Economic recovery efforts around the world will help bolster Rio Tinto's earnings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.