Even With Weak Iron Prices, Rio Tinto Looks Like A Relative Bargain
Stephen Simpson, CFA
Stephen Simpson, CFA
Fri, Apr. 22, 2:59 PM
- Goldman Sachs sees the oversupply in the iron ore market returning, sending prices back to $35/metric ton during Q4, which would be 50% below yesterday’s close of $70.46/ton, the highest level since January 2015.
- Goldman analysts say that while the rally in Chinese rebar was leading the commodities rebound, the “tight steel market in China is a temporary distraction” for iron ore, and “the current rally is unsustainable.”
- "When we look at the profitability of steel mills, we’ve gone from multiyear lows late last year to a multiyear high in the last couple of weeks. It’s a huge swing,” Goldman's Christian Lelong says. “The margins are so attractive that you can afford to pay higher and higher prices for your raw materials. That means iron ore is now well above" the cost curve."
- In today's trade: BHP -0.1%, RIO -1.4%, VALE -2.1%.
- Now read Iron ore powers past $70 as Chinese steel mills boost demand
Thu, Apr. 21, 12:44 PM
- Rio Tinto (RIO -2.7%) says it has launched cash tenders to buy back as much as $1.5B of debt due in 2017 and 2018 as it seeks to reduce its debt load.
- Rio is offering cash through April 27 to purchase its $500M of 2% notes due 2017 and $1.25B of 1.625% bonds maturing the same year; the tenders are expected to close in early May depending on whether certain conditions are met.
- Rio's move is the latest of several companies battered by the commodities rout attempting to shore up their balance sheets.
- Now read Digging deeper into Rio Tinto's latest iron ore production numbers
Thu, Apr. 21, 8:53 AM
- Iron ore surges above $70/metric ton, the highest since January 2015, and has rebounded 84% since bottoming at $38.30 in December.
- Unlike the previous three years, when a slowing Chinese economy hurt demand and prices and prompted a global glut, Chinese policy makers this year have talked up growth and added stimulus, presiding over a revival in the property market that has boosted the outlook for steel consumption.
- “As we’ve seen activity seasonally take off, [China] needed to purchase more, fairly quickly, and that’s brought prices back up,” Mike Henry, BHP Billiton's head of operations and minerals in Australia, tells Bloomberg. “Once the mills are through the restocking cycle, we do expect that we’ll see prices come back down again.”
- BHP +1.1%, RIO +0.3%, VALE +1.1% premarket.
- Now read Rio vs. BHP: A very attractive pairs trade opportunity
Mon, Apr. 18, 9:54 PM
- Rio Tinto (NYSE:RIO) says its Q1 iron ore production fell from the previous quarter and lowers its expectations for 2017 iron ore output, citing delays to its new, autonomous railway system in the Outback.
- Rio says Q1 iron ore production from its Australia mines in the Pilbara rose 13% Y/Y to 84M metric tons, in line with consensus expectations, but fell 4% from Q4 2015.
- The miner says it expects to produce 350M metric tons of iron ore this year, up from 328M tons in 2015, but cuts its projection for 2017 to 330M-340M metric tons, lower than its earlier outlook for 350M tons.
- Rio says testing of the $518M automated train network is continuing with more than 75K km (47K miles) of mainline trials completed; the holdup in fully rolling out the train project may help support iron ore prices that surged 23% in Q1.
- Now read Iron ore rally to fade as oversupply kicks in, Citi says
Mon, Apr. 18, 9:58 AM
- While iron ore’s price declines may have been delayed, they’re still coming, and gains likely will be reversed in H2, Citigroup analysts say.
- Iron ore rose 23% in Q1 as Chinese mills raised production to take advantage of a rebound in steel prices, and some supply was disrupted in Australia, but Citi says both supportive factors probably were reverse, hurting the outlook for the market.
- Citi sees the global glut in iron ore will more than double to 38M tons in 2017 before dropping to 14M tons in 2018 and rebounding to 44M tons in 2019.
- Iron ore is one of the outliers in Citi’s view on raw materials as a whole, believing most prices in the sector likely have bottomed.
- Relevant tickers: BHP +2%, RIO +1%, VALE -0.2%.
- Now read Iron ore prices set to slip in H2, Rio Tinto CEO says and Australia ups iron ore price forecast, sees low-cost miners expanding share
Thu, Apr. 14, 12:19 PM
- Iron ore prices, which rebounded as much as 55% since December amid signs of stronger demand from China, likely will fall during H2 as new supply from mines offsets improved Chinese demand, Rio Tinto (RIO -0.3%) CEO Sam Walsh says.
- “I’ve said all along that we expect the iron ore prices will be volatile. That’s what we’re seeing," Walsh says at Rio's annual shareholder meeting.
- At the same meeting, Chairman Jan du Plessis denies allegations that Rio is colluding with BHP Billiton (BHP +0.1%) to force out high-cost producers from the market.
- Ore with 62% content delivered to Qingdao in China fell 1.8% to $59.38/dry ton today, paring YTD gains to 36%.
- Now read Rio Tinto drops plan to stretch out supplier terms
Thu, Apr. 14, 8:15 AM
- Rio Tinto (NYSE:RIO) is dropping plans to stretch out the amount of time its suppliers must wait for payment after a backlash from contractors and politicians.
- Rio recently informed customers that it planned to extend its payment terms to 90 days from 45 days, doubling the time its already cash-strapped suppliers would have had to wait for payment; rival Australian miner BHP Billiton (NYSE:BHP) moved to 60-day supplier payment terms ~18 months ago.
- After requests by Australian companies to the prime minister, Australian Resources Minister Frydenberg requested Rio reconsider its decision.
- Now read Is now the right time to consider Rio Tinto?
Mon, Apr. 11, 8:21 AM
- Rio Tinto (NYSE:RIO) says it is doubling payment terms for its suppliers to 90 days from 45 days in a bid to free up cash and reduce working capital.
- Rio's new terms reportedly will apply to all contracts valued at $3M or more, and suppliers whose contracts are valued at less than $3M will receive payment in 60 days.
- Rival Australian miner BHP Billiton (NYSE:BHP) moved to 60-day supplier payment terms ~18 months ago.
- Now read Why I am not buying Rio Tinto any more
Fri, Apr. 8, 11:48 AM
- Australia is bullish about iron ore prices for the next five years, raising its iron ore forecast to an average $45/metric ton in 2016 from a December outlook for $41.30.
- As high-cost miners close, Australian producers will boost shipments, and prices will rise to $56/metric ton next year, $61.40 in 2018 and $64.70 in 2021, Australia’s Department of Industry, Innovation & Science says in its quarterly outlook.
- Iron ore's surprise YTD price rebound has swayed few skeptics, with Goldman Sachs and others reiterating bearish forecasts, but Australia projects that its giant low-cost producers BHP Billiton (BHP +4%) and Rio Tinto (RIO +4%), together with Brazil’s Vale (VALE +7.3%), will claim a greater share of global trade and prices will climb.
- Now read Iron ore exports from Australia's Port Hedland expand to record
Thu, Mar. 31, 11:48 AM
- Rio Tinto (RIO -1.3%) is downgraded to Sell from Hold with a $14 price target at Axiom Capital, which says the worse than expected copper and aluminum raises the risks for earnings revisions at the company.
- Axiom analyst Gordon Johnson predicts "unprecedented" copper supply excesses in the next five years beginning in 2016 following five years of supply deficits, while aluminum prices should moderate; copper and aluminum accounted for a respective 15% and 24% of Rio's EBITDA in 2015.
- Johnson also notes that analysis suggests the Chinese iron ore market likely will be oversupplied in 2016, and he expects iron ore prices at a below consensus ~$30/metric ton by year-end of 2016, adding downside risk to the company’s EPS.
- Now read Rio Tinto initiated with Buy rating at Argus
Wed, Mar. 30, 12:57 PM
- Rio Tinto (RIO +3.4%) is initiated with a Buy rating and a $36 price target at Argus, which looks for improved industry fundamentals and stronger sales and earnings in 2017 even as commodity price weakness weighs on Rio’s results in the near term.
- Argus likes Rio's responses to the commodity price downturn - strengthening its operating performance and balance sheet through cost-savings programs, asset sales and capital spending reductions - and believes the announced dividend cut will provide greater financial flexibility.
- The firm views Rio's current stock valuation as attractive, given the expectations of a turnaround through 2017.
Thu, Mar. 17, 8:49 AM
- Rio Tinto (NYSE:RIO) +2.5% premarket after naming copper and coal division chief Jean-Sébastien Jacques as its new CEO, replacing Sam Walsh.
- Jacques will be the first copper man in decades to run the company that depends on iron ore for nearly 90% of its earnings, and is well regarded by analysts for his strategic and negotiating skills and for running tough assignments.
- Jacques, who worked on the strategy team at Tata Steel before joining Rio in 2011, led negotiations over the $4.4B financing agreement needed to expand the giant Oyu Tolgoi copper mine in Mongolia.
- Rio could emphasize M&A more and its dominant iron ore business less, says Bernstein mining analyst Paul Gait, who believes the move "signals a change of direction."
- Jacques “has a very good CV and track record” and is a “better growth prospect” for Rio than Walsh, says George Boubouras, chief investment officer at Contango Asset Management.
Thu, Mar. 17, 2:36 AM
- Rio Tinto's (NYSE:RIO) head of copper and coal Jean-Sebastien Jacques has been anointed as the next chief executive of the company, and will fully take the reins from incumbent Sam Walsh (who has been CEO since 2013) this July.
- "To ensure a smooth transition, Jean-Sebastien, will join the board and become deputy chief executive with immediate effect," Rio said in a statement.
Tue, Mar. 15, 3:56 PM
- The axed dividend at Antofagasta “acted as a sharp reminder of the industry’s suffering after the hefty drop in metals prices,” according to CMC Markets analyst Jasper Lawler, prompting a big drop in shares of base metals miners today.
- Also, BHP Billiton (BHP -7%) was downgraded by Macquarie to an Underperform rating from Neutral, and Rio Tinto (RIO -5.1%) was cut to Equal Weight from Overweight at Morgan Stanley, which expects all the top names to remain under pressure from low prices through 2017.
- Also: VALE -4.9%, FCX -7.1%, TCK -6.8%, CLF -11.8%.
Wed, Mar. 9, 9:47 AM
- Fortescue Metals (OTCQX:FSUMF) Chairman Andrew Forrest lends his weight to a renewed call for an inquiry into iron ore exports from Australia, arguing oversupply is hurting competition.
- His comments follow remarks from Cliffs Natural Resources (CLF -2.5%) that it too wants a government inquiry, as its biggest rivals in Australia have a strategy to crush the competition.
- Australia’s government last May rejected calls by Fortescue and an independent lawmaker to investigate the iron ore market.
- BHP Billiton (BHP +0.3%) and Rio Tinto (RIO -0.9%) have defended their strategy of expanding low-cost output and reject the idea of an inquiry, warning that it risked undermining Australia’s commitment to free trade and open markets.
- Meanwhile, ore with 62% content fell 8.8% to $58.02/metric ton today, eroding some of Monday’s record surge.
Tue, Mar. 8, 10:26 AM
- Iron ore miners fall sharply as the spectacular rally stalls and analysts pile in with mostly bearish assessments.
- Iron ore’s rally likely will prove "short-lived," Goldman Sachs said yesterday as it maintained an end-of-year target of $35/ton, while Citigroup says it is still bearish and Axiom Capital Management says the jump probably is just a blip.
- "The rally is there to be sold because the fundamentals of the market, being supply and demand, do not stack up," says Wayne Gordon at UBS Wealth Management.
- Monday’s 20% spike largely was a response to weekend comments from the Chinese government that implied more infrastructure investment, and does not change the mid-to-long-term outlook, says BHP (BHP -8.8%) Minerals Australia President of Operations Mike Henry.
- Roy Hill CEO Barry Fitzgerald says the price spike was an "aberration... the consensus, if you look at the forward estimates is down, $30s, $40s."
- Citigroup adds that the joint venture between Vale (VALE -10.7%) and Fortescue (OTCQX:FSUMF -12.4%) might have implications for iron ore price support longer term, but it sees an oversupplied market near term.
- Also: RIO -9.1%, CLF -11.3%, X -8.6%, MT -8.3%, AKS -6.9%.
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
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