Stock of the Week: Rio Tinto Ltd (RIO)

The latest Rio Tinto news saw the world’s third-largest miner report its September quarter results and the market reacted very positively, pushing Rio Tinto shares higher.

Quarterly iron ore production hit a record 47.5 million tonnes, up 12% on last year, and up 5% on 2Q.

The group confirmed that it will benefit from its key Pilbara expansion in FY10, and upgraded its FY production guidance to 210-215 million metric tonnes of iron ore. This is from previous guidance for 200 million tonnes.

However, RIO’s aluminium division was less upbeat, dropping 4% in the 3Q on year, with the miner forced to slash production.

Copper production for the quarter was up 46% on year, but down 1% on the 2Q, whilst Australian hard coking coal output was down 5% on year, but up 9% on the 2Q.

Though RIO says it sees signs of improvement in some markets, it will continue to focus on cost reductions.

Rio in detail

rio chart
The Rio Tinto group is one of the world’s largest miners, mining and processing a wide range of metals and minerals including all the key base metals, precious metals, diamonds, iron ore and energy products.

RIO was in the news constantly over 2008 over its massive near-US$40 billion debt problem, though 2009 has seen the group’s stock rise over aggressive attempts to scale back debt.

RIO has addressed its debt issues primarily via an iron ore JV with BHP Billiton, and rights issues in London and Australia.

The company has since slashed debt by $14.8 billion, which is a considerable amount, though there is still a long way to go before RIO can safely say it is out of its debt hole.


The Rio Tinto dividend is usually paid in September (interim) and March (full-year dividend).

As a result of the economic crisis, the failed Chinalco deal, and the purchase of Alcan, Rio Tinto dividends were not paid in September.

The company’s management has said that a final Rio Tinto dividend would be paid in March if the company experiences ‘satisfactory trading results’.

The company said it plans to reinstate dividends, at near the previous levels, from September 2010.

Debt manageable

A potential bauxite and alumina deal could be on the cards with Chinalco, and RIO may also stand to benefit from a sale of its packaging business to Amcor.

This is good news, as is a more promising outlook for iron ore, and for these reasons, we have seen RIO’s stock soar in 2009 after a disastrous 2008.

If RIO continues to aggressively employ cost-cutting techniques, it stands to benefit when the global economic downturn becomes a distant memory.

RIO should see greater stability and potentially stronger trading conditions in its second half.

Technical analysis

After reaching as high as $150 per share (the chart above is adjusted for the recent rights issue) the global financial crisis saw RIO start to trade lower.

After an initial fall, the Rio Tinto share price consolidated just below the 50-week moving average, before falling away to consolidate around what was support in mid 2007, around $60.

RIO was sold off once again in the latter part of 2008, hitting lows of $23.59, before beginning to show some positive momentum into 2009.

Now, however, we can see a clear uptrend is in play, with Rio Tinto stock now trading back above the 50-week moving average.

As long as Rio Tinto share prices maintain trade above the 50-week moving average, we remain happy to own Rio Tinto as part of a diversified portfolio.