Even With Weak Iron Prices, Rio Tinto Looks Like A Relative Bargain
Stephen Simpson, CFA
Stephen Simpson, CFA
Mar. 11, 2015, 12:41 PM
- Cliffs Natural Resources (CLF -7%) CEO Lourenco Goncalves says global iron ore miners should rethink plans to aggressively ramp up supply of the commodity, believing the consequences for Australia could be especially severe.
- Iron ore prices have been cut roughly in half to US$58/metric ton over the past year because of increased exports from Australia's Pilbara region, and Goncalves says a further fall to $30 could lead to "Australia going out of business as a country, because [iron ore] is the most important commodity."
- Low-cost Australian exporters BHP Billiton (BHP -1.1%) and Rio Tinto (RIO -0.6%) say that if they don't raise production then someone else will, but Goncalves calls the strategy "self-destruction."
Mar. 10, 2015, 3:45 PM
- Peabody Energy (BTU -5.6%) slides sharply after Jefferies downgrades shares to Hold from Buy with a $6 price target, cut from $10, on continued concerns about domestic thermal coal fundamentals due to low natural gas prices, weakening exports, MATS related coal plant closures and increased renewable capacity.
- BTU's Australian coal business is more likely to improve in the near-term due to higher seaborne thermal coal prices, the firm says, but operating costs have not declined nearly as much as competitors due to its extensive hedging program.
- Jefferies is bearish on mining shares in the near-term, and the firm revised many of its commodity price forecasts lower, but it has placed four metals and mining stocks above the rest: Freeport McMoRan (FCX -3.5%), Rio Tinto (RIO -2.6%), First Quantum (OTCPK:FQVLF -6.8%) and Angofagasta (OTCPK:ANFGY -5.8%).
Mar. 10, 2015, 11:59 AM
- Top execs at the world's two largest mining companies - BHP Billiton (BHP -3.7%) and Rio Tinto (RIO -2.3%) - say they believe China's hunger for iron ore is not ready to fade, even as the price hit new lows after the country lowered its economic growth forecast to ~7% for 2015 vs. 7.4% growth last year.
- BHP iron ore president Jimmy Wilson says iron ore demand from China's manufacturing sector had been running above BHP's expectations in recent months, echoing comments from Rio's iron ore chief Andrew Harding, who expressed optimism China's government can maneuver the economy into a new stage of growth.
- Harding says China's steel production only needs to rise 1%/year - in line with its estimated growth last year - for the country to reach 1B tons of crude steel output around 2030.
- Earlier: BHP's Wilson stands by iron ore expansion amid glut
Mar. 10, 2015, 8:28 AM
- BHP Billiton (NYSE:BHP) iron ore boss Jimmy Wilson is out in defense of the company's strategy of boosting iron ore output at a time of falling prices and global oversupply.
- "If we pull back our volume, that volume will be filled by other companies... We [would] be penalizing, in essence, our shareholders," Wilson argues, signaling no change of course from BHP even as prices drop.
- "The big guys are saying: ‘We’ve got huge margins, so we’ll keep pumping out iron ore because we’re still making money’,” says a top economist at Westpac Banking.
- Iron ore prices have cut in half over the past year as rising supply from new and expanded mines outpaces demand from steelmakers.
- Premarket: BHP -3%, VALE -2.7%, RIO -1.4%.
Mar. 9, 2015, 3:59 AM
- Just weeks after the group announced a 10% drop in annual earnings and just days after iron ore tumbled to a six-year low, Rio Tinto (NYSE:RIO) is bracing itself for one of its biggest internal restructurings since Sam Walsh took the helm at the mining group two years ago.
- Hundreds of more roles are to be cut as Walsh demands Rio be "more responsive" in keeping up returns to investors, while the company slashes $750M in costs this year.
- Rio’s workforce has already gone from 71K at the end of 2012 (just before Walsh became CEO), to below 60K at the end of last year.
- Previously: Rio Tinto to condense corporate structure in cost cutting move (Feb. 27 2015)
Mar. 6, 2015, 8:25 AM
- Iron ore tumbles to a six-year low after China lowered its economic forecast, renewing concerns about its appetite for the steel-making material at a time when supplies are already outpacing demand.
- Steel demand growth in China - which buys three in every five tons of iron ore traded by sea - last year already was at its slowest in more than a decade.
- Australian iron ore miners have been laying off workers and cutting costs as they cope with lower prices, but they are not expected to curb production, particularly as a weaker Australian dollar helps cushion them from the impact of falling prices.
- RIO -1.4%, BHP -0.6% premarket; also VALE -0.8%.
Mar. 5, 2015, 7:59 AM
- Rio Tinto (NYSE:RIO) clears a major hurdle in its bid to expand the Mount Thorley-Warkworth coal mine, one of Australia's largest, with state planning officials in New South Wales recommending approval of a controversial extension.
- Rio has spent more than five years chasing government approvals for a A$600M (US$468M) expansion of the open-cut mine, but has faced repeated legal challenges that said the development would threaten endangered ecological areas and harm nearby residents.
- The mine is part of the Mount Thorley Warkworth complex that consists of two adjacent open-cut pits, and Rio says the expansion is needed to keep the mine in operation.
- The planning commission's report will now be considered by the state government before consent for the project is given.
Mar. 4, 2015, 8:38 AM
- Rio Tinto (NYSE:RIO) says its majority-owned Bengalla coal mine in Australia has been cleared to boost output by a third and operate for another two decades.
- Rio subsidiary Coal & Allied and 40% partner Wesfarmers (OTCPK:WFAFF) have been seeking the clearance by the New South Wales state government to continue mining and potentially lift production of thermal coal to 15M metric tons/year from 10.7M.
Feb. 27, 2015, 8:14 AM
- Rio Tinto (NYSE:RIO) says it is restructuring its main product groups into four units, part of its strategy of cutting costs as commodity prices slump.
- Rio is folding its coal and uranium units into existing business divisions, eliminating the job of its energy chief and other corporate roles; it also plans to cut hundreds of jobs in its iron ore unit in the Pilbara region, which it will announce in the weeks ahead.
- Rio's two other divisions, aluminum and iron ore, will not be restructured.
Feb. 25, 2015, 2:45 AM
- Rio Tinto (NYSE:RIO) will not be taken over by rival Glencore (OTCPK:GLNCY) because there is no value in it for shareholders and regulators will never let it happen, announced Rio Tinto chief executive Sam Walsh.
- Rio snubbed a takeover approach from Glencore last August to create a $160B mining and trading giant, but Glencore never ruled out making a fresh attempt.
- Under U.K. rules, it could return with an offer from April onward.
- Previously: Glencore confirms it is no longer considering merger with Rio Tinto (Oct. 07 2014)
- Previously: Rio Tinto says it turned down Glencore merger idea in August (Oct. 06 2014)
Feb. 24, 2015, 4:58 PM
- BHP Billiton (NYSE:BHP) racked up several positives in its H1 results, but the company’s valuations and challenges stemming from its U.S. onshore petroleum and potash operations, as well as the South32 de-merger mean Rio Tinto (NYSE:RIO) may be the better stock to play a possible recovery in commodities prices, according to a Barron's profile.
- From a valuation standpoint, BHP trades at 15.4x projected earnings and 2.1x book value, while Rio trades at 13.3x projected earnings and 2.1x book, Barron's Isabella Zhong writes.
- Rio's iron ore cash cost of $19.50/metric ton is even leaner than BHP’s $20.35, and Rio has a more focused business, with a concentration on iron ore, aluminum and copper., and - unlike BHP - no exposure to oil.
Feb. 20, 2015, 9:58 AM
- Indonesia's government will start allowing miners to renew contracts earlier than two years before they expire, a move that would favor Freeport McMoran (FCX -0.6%) and its expansion plans in the country.
- FCX, which runs the Grasberg copper and gold mining complex, has for years been seeking contract certainty before investing the $15B-plus needed to turn its Indonesia asset into the world's biggest underground mine after 2016.
- FCX's current deal is due to expire in 2021 but Indonesia's energy and mineral resources minister says a government decision on an extension would be reached before by this July.
- Rio Tinto (NYSE:RIO) has a joint venture with FCX for a 40% share of Grasberg's production above specific levels until 2021, and 40% of all production after 2021.
Feb. 12, 2015, 11:59 AM
- Rio Tinto (RIO +2.3%) has no major M&A plans in the works, preferring to focus on building new mines rather than buying low-quality assets in the current market environment, CEO Sam Walsh says.
- The CEO says shareholders have asked whether Rio had any interest in deals, with some wondering whether the company might consider approaching Freeport McMoRan (NYSE:FCX) or Anglo American (OTCPK:AAUKF, OTCPK:AAUKY), but "we are not doing that," adding that shareholders had dismissed the idea that Rio would give Glencore (OTCPK:GLCNF, OTCPK:GLNCY) "any air at all" to consider a tie-up.
- Talks are still ongoing with the Mongolian government to settle all outstanding concerns about the development of the underground Oyu Tolgoi mine, Walsh says while indicating that Rio has not offered to increase its stake in the mine.
- Walsh also says Rio will not take part in any upcoming tender process for two blocks of the massive Simandou iron ore deposit in Guinea.
- Earlier: Rio Tinto's $2B buyback signals shift in strategy
Feb. 12, 2015, 7:49 AM
- Rio Tinto (NYSE:RIO) +3.3% premarket and leads the FTSE 100 after saying it will buy back $2B (£1.31B) of its shares this year, as it reported a strong increase in full-year net profit despite lower revenue due to weak iron ore prices.
- The buyback marks a strategy shift among the world's largest mining companies away from investing heavily in new mines - some of which have turned sour amid tumbling commodity markets - and toward a focus on higher shareholder returns.
- Rio's FY 2014 net earnings jumped to $6.5B from $3.67B a year ago, although the result fell short of the $8.38B consensus analyst expectations; a year ago, results were knocked back by multibillion-dollar writedowns against assets such as the Oyu Tolgoi copper project in Mongolia.
- FY 2014 revenues fell 7% Y/Y to $47.7B; despite increasing shipments by 18% last year, revenue from iron ore sales fell 10%.
- Rio also says it cut net debt sharply to $12.5B from $18.1B a year ago.
- Rio's full-year dividend will total $2.15/share, up from $1.92 a year earlier.
Feb. 11, 2015, 2:38 PM
- Iron ore miners in the next few months will have the opportunity to bid for the northern half of the Simandou deposit, one of the world's most sought-after iron ore deposits, Guinea's mining minster tells WSJ.
- The official claims he is not concerned that weak iron ore prices will affect the bidding for the assets, saying it could be at least five years until the mines actually begin producing.
- The Simandou deposits are at the heart of an international legal dispute: Guinea last year stripped the rights to mine the deposit from Vale (NYSE:VALE) and the mining arm of Israeli tycoon Beny Steinmetz’s conglomerate, with the government alleging that the rights were obtained through corrupt practices.
- The blocks once were controlled by Rio Tinto (NYSE:RIO), but a previous government in Guinea revoked its rights to mine them; Rio is still helping to develop the southern part of the concession.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) CEO Ivan Glasenberg has criticized the over-production of iron ore, but the company has held discussions with Guinean officials about mining rights in Simandou.
Feb. 3, 2015, 10:24 AM
- Copper prices are on track for their biggest gains since September on speculation that China would use stimulus measures to jump-start its economy and boost demand for the metal.
- Rising oil prices and Chinese stimulus speculation “have changed the focus to the upside and the short-covering has done the rest,” says Saxo Bank's Ole Hansen, adding that “energy is such a big and important part of the commodity sector, and the somewhat improved sentiment there also helps other” raw materials; aluminum and nickel also are rising to multi-week highs.
- "We’re in this perverse world where bad news is good news,” says BNP Paribas analyst Stephen Briggs, and "a lot of people are thinking China’s going to join the rest of the world and lower interest rates or [offer] some kind of monetary response."
- Raw materials companies are off to a strong start today: FCX +5.8%, BHP +3.9%, RIO +2.4%, VALE +3.9%, SCCO +3.4%.
- ETFs: JJC, DBB, JJN, JJU, JJT, CPER, BOM, RJZ, BOS, LD, BDD, JJM, FOIL, NINI, CUPM
Rio Tinto Plc is engaged in the business of finding, mining and processing of mineral resources. It operates through five product groups: Aluminium, Copper, Diamonds & Minerals, Energy and Iron Ore. The Aluminium product group produces bauxite, alumina and primary aluminum production. The Copper... More
Sector: Basic Materials
Industry: Industrial Metals & Minerals
Country: United Kingdom