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Rio Tinto: Attractive Investment For Income-Oriented Investors
- Strong cash flow despite lower iron ore prices.
- Reduced future financial leverage allows to increase dividend payout ratio.
- Volume growth helps offset some of the effect of lower iron ore prices.
- Still risk of further decrease in iron ore prices.
Rio Tinto: Continuing Iron Ore Expansion Is Unlikely To Boost EarningsVladimir Zernov • Fri, Oct. 17
- Rio Tinto reports another quarter of iron ore production growth.
- Iron ore continues to dominate Rio Tinto's earnings profile.
- Iron ore price downside will likely offset production increases.
Mining For Investment Returns From Rio Tinto
- Rio Tinto Group is back in the news, having rebuffed a mega-merger offer from Glencore plc that would have created the world’s largest mining company.
- As the price of iron ore alternately falls and plummets, we take a look at the prospects for an independent Rio;
- One of the world’s largest low-cost producers.
Rio Tinto And The Iron Ore Version Of 'Dancing Until The Music Stops'
- Major iron producers like Rio Tinto are engaged in what could be a dangerous game of supply brinkmanship.
- Rio and others seem to assume that the destruction of high-cost competition can be surgically executed without collateral damage to the entire industry and themselves.
- I see parallels to the attitudes in the financial industry in 2007 that make me what to remain short Rio Tinto until severe market imbalances show sign of change.
- Last week, iron ore prices touched a 5 year low of $78.60 per tonne. Goldman Sachs is bearish on iron ore prices for the next three years.
- Rio Tinto's 3D mapping technique will reduce its production cost.
- The current fall in Rio Tinto's share prices is a buying opportunity.
Rio Tinto: Contrarian Investment At A Ridiculous Valuation?
- Rio Tinto suffers like other basic materials companies from low/falling raw material prices.
- Iron ore prices have just marked a five year low and put additional pressure on mining companies.
- Long-term investors see the opportunity to buy a leading mining business with excellent growth prospects at nine times earnings.
Q&A: Will My Investment In Rio Tinto Continue To Be Dead Money?
- Rio Tinto's share price muddled along for 4 years.
- Iron ore prices hit a 5 year low of $85 per ton.
- Since 91% of Rio Tinto's operating profit during 1H 2014 came from iron ore, this clearly worries investors.
- Investors are wondering: Will their investment continue to be dead money?
How Will Job Cutting In Australia Impact Rio Tinto?
- The job cutting plans came into place because the company wants to remain competitive and reduce costs, in the wake of declining coal demand and falling coal prices.
- Coal prices are declining because of a fall in the demand for coal, and excess supply of coal due to too many mine expansion plans.
- Rio Tinto does not plan on any major capital expenditure and is focused on restructuring its coal portfolio.
- There is uncertainty about future revenues, though operating costs are expected to decline.
- Buying of these shares is not recommended because the coal market is not showing signs of improvement in the nature, which is ultimately bad news for the company as well.
- The metals and minerals industry is facing supply and demand dynamics.
- Rio has been working on a right strategy which is driving growth.
- Rio’s cash position is strengthening quarter over quarter which reduces any potential risk to its balance sheet and returns.
- Rio is a good stock to hold.
- These two companies have seen recent share price decreases, yet offer investors outstanding and sustainable dividends.
- Both have opportunities to capitalize on initiatives aimed at increasing profit and market share.
- The market, in my opinion, is undervaluing these companies due to overstated fears about future earnings.
- Past the industry bottom, investors in cyclical mining stocks like Rio Tinto have the best opportunity for share price gains by buying early in the cycle.
- Cost cutting, lower capex and the lowest operational costs yet support earnings. Debt can be paid down and a capital return via special dividend or share buyback becomes more possible.
- Long-term, market leaders with the best profit margins and deepest pockets for future growth have the best chance of raising share prices and paying decent dividends.
Even With Weak Iron Prices, Rio Tinto Looks Like A Relative Bargain
- Iron ore prices have been very weak this year, but Rio Tinto's position at the bottom of the cost curve allows its to stay FCF positive much longer than most.
- Improvements in the aluminum and copper operations are long-await and still uncertain, but could drive upside in the coming years.
- Rio Tinto seems like a relative bargain in the mining sector, with a 6x multiple supporting a fair value in the mid-$60s.
- We are very selective when it comes to adding any commodity-equities exposure to our newsletter portfolios.
- Rio Tinto is trading on the cusp of the low end of its fair value range, and the firm is attractive on a relative valuation basis.
- We include Rio Tinto in the Best Ideas portfolio, which continues to perform well.
Rio Tinto: Investors Discount Rio Tinto's Strategic Long-Term Value
- Rio Tinto obviously trades at a depressed valuation with an earnings multiple of 8.8x.
- Investors overestimate the importance of short-term commodity prices and discount Rio Tinto's long-term strategic value for economic growth.
- Rio Tinto remains an interesting anti-cyclical bet on a resurging Chinese economy.
- Goldman Sachs has forecasted the price of iron ore will reach $80 per ton within the next two years.
- This decline in the price of iron ore will hurt Rio Tinto’s top line in the coming years, causing an adverse effect on the company’s earnings as well.
- Rio Tinto does not seem to be able to sustain its dividend increases in the coming years; especially since it already has a very high dividend payout ratio.
- Rio Tinto was downgraded by Citi Analysts and others early last week.
- The Spot Price for Iron Ore continues to fall and be a negative with respect to projected earnings for Rio Tinto.
- Rio Tinto had strong positive information with respect to their most recently issued earnings report.
- Rio Tinto is more diversified than other mining companies within the Iron Ore industry, but it doesn't derive enough profit from this activity.
- Rio Tinto shows us how other Iron Ore companies can become successful. While Rio Tinto is strong company, it does not offer enough of a bargain for the potential investor.
Rio Tinto: A Ridiculously Undervalued Mining Company With Excellent Growth Prospects
- Rio Tinto is a seriously undervalued commodity play.
- The company creates value for shareholders via cost reductions and capex alignments.
- Rio Tinto could trade at 13-15x forward earnings when China's commodity hunger awakens.
- China contributes about 35% to the total revenue base of Rio Tinto and its urbanization projections are too optimistic to be realized.
- The company previously raised considerable debt to make acquisitions; however, due to ill-advised acquisitions, the company’s balance sheet weakened with enormous debt and fluctuating profits.
- Considering that 77% of the company’s EBIT is dependent upon iron ore, the expected metal price dip will significantly effect the bottom line.
Yesterday, 8:58 AM
- Iron ore trades below $70 for the first time in five years, as rising low-cost supplies by the world’s top miners widen a global glut amid slowing demand from China.
- Ore with 62% content delivered to Qingdao fell 1.2% to $69.58/dry metric ton, the lowest since June 2009, and has dropped 48% YTD.
- “The biggest problem is on the supply side as majors like BHP and Rio are pushing huge volumes into the lackluster demand environment," says Bernstein's Paul Gait, who adds that $65 "feels like a floor."
- BHP -1.8%, VALE -0.6%, RIO -0.4% premarket.
Mon, Nov. 24, 6:28 PM
- Various hedge funds were told this month by a prominent London mining banker to prepare for an all-but-inevitable takeover of Rio Tinto (NYSE:RIO) by Glencore (OTCPK:GLCNF, OTCPK:GLNCY), Bloomberg reports.
- Former JPMorgan Chase dealmaker Ian Hannam, who now runs a boutique advisory firm, reportedly convened reps of more than 20 investors to share his views on the potential deal, perhaps intended in part to help position his firm to win a role in the transaction.
- Glencore said last month it had abandoned a bid for Rio after a July proposal worth ~$160B was rebuffed.
Mon, Nov. 24, 12:57 PM
- Mongolia's parliament on Friday appointed a new prime minister, more than two weeks after the ouster of his predecessor amid an economic crisis prompted in part by the stalled Oyu Tolgoi mine expansion.
- Given that the new PM had been a cabinet member for the past three years and would have been involved in discussions about Oyu Tolgoi, analysts say the change does not bode well for any real breakthrough.
- Oyu Tolgoi, 66% owned by Rio Tinto (RIO -2.2%) subsidiary Turquoise Hill (TRQ -1.1%), has the potential of adding 30% to Mongolia's GDP, but the underground expansion has been held up for years due to disputes about funding.
Mon, Nov. 24, 7:53 AM| Comment!
Wed, Nov. 19, 12:26 PM
- Iron ore prices extend their historic decline, approaching $70/dry ton in a retreat to the lowest level in more than five years, as analysts rule out any Chinese restocking that typically supports prices towards the end of each year.
- The price is now at a level at which all but the three biggest low-cost producers - Rio Tinto (RIO -2.4%), BHP Billiton (BHP -3%) and Fortescue (OTCPK:FSUMF -8.8%) - are either generating losses or are struggling to break even.
- Steel stocks also are getting whacked: SCHN -5.4%, X -4%, PKX -3%, AKS -3%, CMC -2.7%, STLD -2.5%, NUE -1.6%, MT -1.3%.
Tue, Nov. 18, 7:01 PM
- Freeport McMoRan (NYSE:FCX) says it expects repairs to its sole U.S. copper smelter, which was shuttered last week after a fire, to last into December.
- The shutdown comes as companies that use copper to make wire and plumbing hammer out terms of next year's supply contracts; a prolonged shutdown would raise concerns about U.S. supplies of refined copper, as Rio Tinto's (NYSE:RIO) big smelter in Utah struggles with low ore grades.
- FCX's Arizona smelter has capacity to produce 180K metric tons/year, ~14% of annual U.S. output.
Tue, Nov. 18, 5:24 PM
- The Ebola epidemic in west Africa has led mining companies in the region to put expansion plans on hold, delaying the rollout of jobs meant for residents of the countries hardest hit by the virus.
- ArcelorMittal (NYSE:MT) has delayed a $1.7B expansion at its iron ore mine in Liberia, Rio Tinto (NYSE:RIO) has stopped work on a $20B iron ore mine in Guinea, and Sierra Leone-focused London Mining filed for bankruptcy last month after falling iron ore prices and Ebola concerns hampered its ability to attract financing.
- It wasn’t supposed to be like this: Guinea holds two-thirds of the world’s bauxite reserves as well as massive iron ore deposits, while Liberia and Sierra Leone boast troves of diamonds, gold and iron ore.
- Officials worry the pullback could set development back by a decade in a region that only recently escaped a cycle of war and political turmoil.
Tue, Nov. 18, 12:49 PM
- Iron ore extends its tumble deeper into five-year lows as declining home prices in China add to worries that an economic slowdown in iron ore's biggest buyer will deepen and exacerbate an oversupply.
- Ore with 62% content delivered to Qingdao, China, has retreated 47% YTD to $71.80 a dry ton, and Citigroup thinks prices may drop to less than $60/ton next year as output rises further and demand remains weak; China’s bad loans climbed in Q3 by the most since 2005, while new-home prices declined, adding to speculation the cooling economy will weaken further.
- VALE -2.9%, RIO -1.9%, BHP -1.1%, CLF -6%, X -1.4%, AKS -1.9%.
Mon, Nov. 10, 10:20 AM
- Rio Tinto (RIO -0.6%) CEO Sam Walsh says he is hopeful that a change of leadership in Mongolia could turn out to be a positive for the stalled $5.4B expansion of the Oyu Tolgoi project while leaving open the prospect for another writedown at the mine.
- Last week's ouster of the prime minister comes as Rio, its Turquoise Hill (TRQ -0.2%) subsidiary and Mongolia’s government continue negotiations on disputes over taxes and costs that have held up progress for more than 18 months on an underground extension to the country’s single biggest foreign investment.
- In its Q3 results, TRQ said it and RIO had made an offer to the Mongolian government to resolve shareholder matters in a manner the companies believe “is beneficial to all stakeholders.”
Mon, Nov. 10, 8:56 AM
- Rio Tinto (NYSE:RIO) CEO Sam Walsh tells Reuters he is unfazed by plunging ore prices, believing his company's industry-low production costs of $20.40/metric ton in H1 2014 will help it ride out the storm.
- Walsh also says he is confident of increasing returns to shareholders at full-year results in February, adding that RIO has no plans to cut its 2015 capital spending target of $8B, announced last year.
- RIO is on track to increase output 9% to 290M metric tons ahead of a push to 360M metric tons, ranking it second in size behind VALE and far ahead of third-place BHP.
Fri, Nov. 7, 10:58 AM
- Iron ore prices cap their biggest weekly decline in more than five months and its third straight week of losses amid an expanding global surplus.
- Ore with 62% content delivered to Qingdao lost 4.7% this week to $75.84/dry metric ton, data from Australia's Port Hedland showed record iron ore exports last month, and steel mill closures ordered by China this week to curb air pollution for a global summit also was seen hurting demand.
- Iron ore has lost 44% YTD as producers including Vale (VALE +3.2%), BHP Billiton (BHP +3.7%) and Rio Tinto (RIO +2.6%) expanded supplies, and ABN Amro's Ben Cheung does not expect the oversupply situation to be alleviated next year.
- Vale, which is seeking to boost output by 50%, this week opened its $1.4B port in Malaysia where its Valemax vessels can unload cargoes for onward shipping to clients in Asia in smaller vessels.
Thu, Nov. 6, 2:42 PM
- A train operated by Rio Tinto (RIO -1%) subsidiary Iron Ore Co. of Canada has derailed following an apparent landslide in eastern Quebec, and the train’s conductor is missing.
- The train was found partially submerged in water after departing its shipping terminal in more than 500 miles northeast of Montreal; the railway runs along the north shore of the St. Lawrence River.
- The train cars were empty.
Wed, Oct. 29, 2:58 PM
- Rio Tinto (RIO -2.9%) and Hitachi reportedly will form a strategic partnership in an effort to streamline iron ore mining in the Pilbara region of western Australia.
- Hitachi will provide its information technology for infrastructure management to raise the efficiency of Rio's iron ore mining operations; for example, Hitachi may place sensors on drilling equipment and trains used in transporting the ore, then collect data which can be analyzed to optimize efficiency.
- Rio Tinto has 15 mines, three power plants, four ports and a 1,600 km railway system at Pilbara, where it produces ~290M tons/year of iron ore.
Mon, Oct. 27, 6:25 PM
- Cliffs Natural Resources (NYSE:CLF) -0.2% AH after reporting Q3 earnings that beat expectations and a 16% Y/Y drop in revenues that nevertheless met estimates.
- CLF swung to a loss in the quarter, dragged down by a $6B writedown related to its purchase of a Canadian iron ore mine as well as 32% lower iron ore prices and 17% lower met coal prices.
- CLF says Q3 costs at its eastern Canadian operations were $81.71/ton, and it expects costs to remain at $80-$85; the big three miners - BHP, RIO and VALE - control massive mines, ports and railroads, which allows them to produce iron ore at $50/ton or lower.
- Iron ore pellet sales volume totaled 6.8M tons (+8% Y/Y) for the U.S., 3.1M tons (+11%) for Asia Pacific, and 2.3M tons for eastern Canada (-12%); North American coal sales volume was 1.9M tons (+15%).
- Gross margin narrowed to 9.8% from 22.5% a year earlier.
- "Despite continued cost cutting progress at Bloom Lake, Phase I is not feasible. By the end of this year, we will have a solution for Bloom Lake," CEO Lourenco Goncalves says.
Thu, Oct. 23, 7:55 AM
- Rio Tinto (NYSE:RIO) extends the tenure of CEO Sam Walsh and CFO Chris Lynch, rewarding them for restoring capital discipline after a run of writedowns from soured acquisitions and eliminating a layer of uncertainty after the company recently became a takeover target of Glencore.
- Walsh and Lynch will be moved to open-ended contracts after the annual general meetings in Australia and the U.K. next year.
- RIO -0.8% premarket.
Tue, Oct. 21, 3:13 PM
- Jefferies lowers its commodity price forecasts, cuts 2015 earnings estimates for mining companies it covers by an average of 21%, and downgrades BHP Billiton (BHP +0.6%) to Hold from Buy but maintains a Buy rating on Rio Tinto (RIO +1.5%) and a Hold on Vale (VALE +1.1%).
- The firm expects BHP to outperform over the very long-term but sees limited upside potential over the next 6-12 months, with shares now trading at a premium on price/NPV; BHP also has limited scope to materially grow its dividend over the next year.
- Jefferies maintain its Buy rating on RIO based on relative valuation as well as capital return potential, high return on capital invested and strong free cash flow even in a weaker iron ore price environment.
RIO vs. ETF Alternatives
Rio Tinto PLC is an international mining group that engaged on finding, mining and processing the Earth's mineral resources. Its main products are Bauxite, Alumina, Copper, Gold, Molybdenum, Silver, Nickel, Diamonds and Rutile.
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