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September 28, 2010
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One of the leading mining companies of the world, Rio Tinto (RTP), intends to infuse $230 million for further development of its Pilbara iron-ore mine and increase its production capacity to 230 million tons annually (mt/a) by early fiscal 2012. At present the mine has a capacity of 220 mt/a. An investment of $91 million made in early 2010 would make the mine produce 225 mt/a from the second quarter of fiscal 2011.
During the recession, Rio Tinto aligned its production levels and reduced controllable cost through production cuts, headcount reduction and consolidation of offices around the group, rapid acceleration of outsourcing and off-shoring 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 and has plans to further invest to increase the production of the mine to 330 mt/a by the second half of fiscal 2015. During the middle of September, Rio proposed to invest around $800 million to complete the underground block cave project at the Argyle Diamond Mine located in Australia and make it operational by 2013 with 9 mt/a.
After acquiring a 22.3% stake in Ivanhoe Mines Ltd. (IVN) in June 2010, Rio Tinto in September acquired an additional 5.3% stake by exercising its warrants. On closure of this transaction, Rio Tinto’s stake in Ivanhoe is around 35%.
In August 2010, Rio Tinto also declared its $1.6 billion investment to develop the 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 Tinto 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 earmarked for investments in fiscal year 2010 for the expansion of multiple projects. Rio Tinto’s investment in various growth projects will enable it to feed the long-term demand.
Thus, we reiterate our Outperform recommendation on the ADR. The stock also maintains its short-term “Strong Buy" rating, equivalent to a Zacks #1 Rank.
Read the full analyst report on "RTP"
Read the full analyst report on "IVN"
Read the full analyst report on "ACH"
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