Zacks_Analysts' Blog : Rio Tinto on Investment Spree - Analyst Blog

During the middle of September, Rio Tinto (RTP), one of the leading mining companies, disclosed its intension to infuse $803 million to complete the underground block cave project at the Argyle Diamond Mine located in Australia , to be operational by 2013.

 

The investment is expected to extend the life of the mine by another 6 years and from 2013 onwards it is expected to produce 9 million tons annually.

 

During the recession, Rio aligned its production levels and reduced controllable cost through production cuts, headcount reduction, consolidation of offices around the group, rapid acceleration of outsourcing and offshoring of IT and procurement, and deferral of exploration and evaluation expenditure. However, the economy has started showing improvements and the company is becoming a little aggressive in the way it conducts business.

 

Rio Tinto is now on an investment spree. After acquiring a 22.3% stake in Ivanhoe Mines Ltd (IVN) in June 2010, Rio recently acquired an additional 5.3% stake with 40.1 million shares by exercising its warrants. On closure of this transaction, Rio’s stake in Ivanhoe is around 35% with 184.7 million shares.

 

In August 2010, Rio Tinto also declared its $1.6 billion investment to develop Hope Downs 4 iron ore project in Australia, which is expected to be operational by 2013 with an annual capacity of 15 million tons. Further, Rio signed a MoU with Aluminum Corporation Of China Limited – Chinalco (ACH) for the development and operation of the Simandou iron ore project in Guinea for a total investment of $563 million.

 

A total of $3 billion has been approved for investments in fiscal year 2010 for the expansion of multiple projects. Rio’s investment in various growth projects will enable it to capitalize on the long-term demand.

 

Thus, we reiterate our Outperform recommendation on the ADR. The stock also maintains its short term “Buy" rating, equivalent to a Zacks #2 Rank.