Equity prospects

Rio Tinto

John Royden, Head of Research

Price£37.60

52 week high yield£37.85 - £22.54

Net yield4.86%

Hist / pros per14.0 - 11.1

Equity market cap£68,722

Rio Tinto (Rio) is an international miner. Iron ore accounts for circa 75% of their operating profit and of that, about 95% comes from their Pilbara mine in Australia.

Other products are aluminium, copper, diamonds, gold, industrial minerals, coal and uranium. Aluminium is the second most important asset representing close to 16% of operating profits. Their minority 34% stake in the Mongolian Oyu Tolgoi mine will raise the profile of copper in the company over time. 

Not surprisingly, if you overlay the iron ore and Rio share price on a chart, the high level of correlation is more than clear. 

In 2015, fears of a Chinese slow down pushed the iron ore price to a trough of c$40 per ton. Since then, the price rallied to a March 2017 high of $90. It is now trading at $75 and appears to have upward momentum as Chinese steel production recently surprised on the upside in terms of both volume and margins. That was in conjunction with weak supply and weak guidance from many of the miners. 

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