Introduction - Rio Tinto Shares
Rio Tinto, an Anglo-Australian multinational and one of the world’s largest metals and mining corporation, is a dual-listed company traded on both the London Stock Exchange (a component of the FTSE 100 Index) and the Australian Securities Exchange (a component of the S&P/ASX 200 index). Additionally, American Depositary Rio Tinto Shares British branch are traded on the New York Stock Exchange, providing it listings on a total of 3 major stock exchanges.
Rio Tinto is involved primarily in the extraction of minerals but also has major operations in refining, mainly for refining bauxite and iron ore.
7 reasons to buy Rio Tinto Shares today!
1- Low cost with high cash flow
Recently, volatile weather conditions, operational difficulties and the declaration that Brazilian mining giant Vale would continue production have all been a reason of fall in Rio Tinto share price. In addition to this, the renewed US-China trade concerns added fuel to the fire. In a surprise announcement overnight, US President Donald Trump tweeted that additional tariffs of 10% would be imposed on $300 billion of Chinese goods.
Resultantly, Rio Tinto Ltd.’s share price had fallen 4.3% to below A$94 per share on the opening of ASX in the morning. Even with these challenges, Rio Tinto delivered an impressive interim result. It posted consolidated sales revenue of $29.7 billion, showing a 9% increase over year. Underlying first-half earnings were also a sturdy $4.93 billion, beating average analyst forecast of $4.86 billion. Net earnings, by comparison were 8% lower at $4.1 billion but due to an $800 million write down of the company’s Oyu Tolgoi project.
2- Confident increasing dividends
For the past two years, Rio Tinto (RIO) has set the benchmark for shareholder returns within the mining sector Rio Tinto Ltd. It declared cash returns of strong $9.7bn and $13.5bn in 2017 and 2018, respectively. Recently, it announced the intent to return a record $3.5 billion to investors and included in this is an interim dividend of 151 cents per share ($2.5 billion) and a special dividend of 61 cents per share ($1.0 billion). The Company is definitely committed to shareholder value creation and their world class portfolio and strong balance sheet serves them well in all market conditions.
3- Buyback and details on buybacks. Reduce shares boost cost
Rio Tinto, announced on 20th September, 2018 that it will conduct an off-market share buyback for up to 41.2 million shares in its Australian entity Rio Tinto Ltd, worth about $1.9 billion, and further on-market purchases of London’s Rio Tinto plc shares, bringing the total to $3.2 billion which it intends to return to its shareholders. Previous buybacks have favoured the London side of the dual-structured company. The off-market buy-back was successfully completed on 12 November 2018 achieving its share purchase target for a total consideration of A$2,871 million and the on-market buy-back of Rio Tinto plc shares was then determined to total a maximum amount of US$1,119 million commencing on 28 February 2019 and will be completed no later than 28 February 2020.
4- Entering battery metal sector
Rio Tinto has been given an opportunity to supply the world’s electrification needs because of discovery of a giant deposit of jadarite, a lithium-containing mineral unique to Serbia. First Discovered in 2004, Jadar contains boron and lithium in high concentrations, placing it among largest lithium deposits in the world. There are 26 steps to be able to extract the lithium. Since the beginning of the project, Rio Tinto has been working closely with the Serbian government and local officials to ensure the project moves forward responsibly and in a manner that benefits surrounding communities.
Lithium and Borate are the intended outcomes of this project. The first one is a key ingredient in the making of the batteries that power electric vehicles (EVs) and high tech devices. While, Borate is used in insulation fibreglass and wind turbines. Once the feasibility studies are done and all necessary approvals are obtained, the company plans to start production in 2023.
Last year, Rio apparently bought a $5B stake in Chile’s Chemical and Mining Society (SQM), the world’s largest lithium producer which would provide the company with a strong position in the booming battery metals sector, though it already holds key copper assets and the red metal used in EVs.
5- Auction of Precious stones
The Argyle Diamond mine, the largest diamond producer in the world by volume and only known source of pink and red diamonds, is owned by the Rio Tinto Group. Not only this, Rio Tinto also owns the Diavik Diamond Mine in Canada and the Murowa Diamond Mine in Zimbabwe. Rio holds rough diamonds tender, which consists of lots of exceptional gems including a range of rare natural pinks and reds from its Argyle mine in Western Australia. Some of these diamond auctions have delivered records in the history. There is a strong global demand for precious stones and Rio’s diamonds are sold rough, except for the rare pink ones, which are cut, polished and traded as loose gems.
6- Volatility makes it easy to buy cheap and hold for long term growth
Rio Tinto is no doubt a volatile investment with some extreme ups and down. It is important to note that Rio Tinto is a miner which are highly cyclical. In the late 2000s, its annual growth rate for the period was 21%, Annual revenue growth was 30% and annual earnings growth was at 25% per year. When we look at 2012, we see that the company represented boom phase of Rio Tinto’s business cycle. But by 2013, China’s quick pace of development slowed, leading to years of strenuous effort and heavy investment from miners making supply exceed demand.
And that, of course, had a negative impact on commodity prices which affected Rio Tinto as well. Although the company’s efforts to reduce costs and increase cash flows managed to offset falling prices in 2013, there was still further commodity price declines in 2014. More recently, commodity prices have stabilised, although at low level. Despite all, Rio Tinto managed to increase revenues and earnings in 2016. Perhaps more importantly, the dividend was only cut very slightly which has helped the share price to recover dramatically. So, when prices are dropping, that is the time to do your research and buy Rio`s share at a discount.
7- Long term progressive planning
Rio Tinto emphasised on growth on a number of core projects in its interim results. The company has continued to make progress on its Oyu Tolgoi copper project and signed off on a $5.3 billion expansion of this Mongolian copper mine. After completion, Oyu Tolgoi would be one of the world’s largest copper mines, with its roughly 125 miles of underground tunnels that will track three times as deep as the Empire State Building. Its first production could commence as early as May 2022. The company is also making an effort to consolidate its iron ore operations. Admittedly, it is working hard to optimise performance across iron ore system, following the operational challenges which arose in the first half.