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Tinto Turnaround

 3 min read / 

The world’s biggest iron ore manufacturer Rio Tinto recently broke its production record driving its share price up 3% in a day. Large quantities of it were found in the Pilbara region of Western Australia. They are looking to extract 290 million tonnes this year and increase that to 330 million in 2015. With the correct infrastructure now in place to transfer the ore, there is real potential for Rio Tinto to grow, rapidly.

The price of extraction in the Pilbara region is about $50 per tonne. The iron ore price on the commodities market is now $100 per tonne, up from $89 in mid-June. The largest acquirer of iron ore at the moment is of course, China. With recent figures showing a boost in growth of 7.5% in China, the market for iron ore has reason to be optimistic with new builds and construction popping up all over the place. Ping An Bank are currently building the tallest building in China which is located in the growing financial hub of Shenzhen. At 660 metres it will become the 2nd tallest in the world. A decrease in the reserve ratio of Chinese banks means they need to hold less in capital reserves which means they can make more loans. This is the main reason behind their strong economic performance so far this year. It’s just as well for Rio Tinto as 89% of their business is from steel-making materials. China are very keen to import. They need 1 billion tonnes a year. Their iron ore only contains about 30% iron, whereas the ore which Rio Tinto mine from Brazil and especially Australia contains double that amount, just over 60%.

Rio Tinto had a fantastic 1st quarter of 2014 compared to the 1st quarter of 2013. Iron ore shipments were up 16% and production was up 8%. Copper was up 17% and hard coking coal up 14%. However all these figures were down from the Q4 results of 2013 when Rio Tinto had just expanded further into Pilbara. There was abundant ore to start off with which meant production was high so confidence was high and the share price went up. The reason for the poor Q1 and Q2 results of 2013 were worries about China’s growth. Those worries have been banished again by the latest results from Beijing so we can expect Q2 and Q3 of 2014 to be strong ones for Rio Tinto. Especially due to the record breaking quantities of iron ore found in Pilbara. Rio Tinto also set a new bauxite production record in the 1st quarter of 2014. Up 5% from the same time last year. Alumina was up 17% from the 1st quarter of 2013 and these figures will only grow as the year goes on.

It looks like a very successful year so far for Rio Tinto. However we can only really judge it at the end of 2014 when we can compare the results with the last quarter of 2013. Rio Tinto have China importing in extreme quantity and are mining good quality ore.  The iron price is stabilising at around $100 a tonne which makes Rio Tinto a good buy right now.

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