Coverage Launch: $104 Trefis Price Estimate for Rio Tinto

Rio Tinto (NYSE:RIO) is a diversified mining and resources group, headquartered in London and Melbourne. The company has operations across six continents, but primarily focuses its operations in Australia and Canada. Rio Tinto faces direct competition from other mining giants such as ArcelorMittal (NYSE: MT), Cliffs Natural Resources (NYSE: CLF), Freeport McMoran (NYSE:FCX) and other mining companies.

The company has a number of subsidiaries, each focusing on one of the 14 different product types in the company’s portfolio. Rio’s operations focus on mining primary ore for metals, however it also owns a number of large high capacity smelting facilities for aluminum and refining facilities for copper & gold. China’s Chinalco owns 9.3% of Rio Tinto.

We recently launched coverage on Rio Tinto with a $104 price estimate for the company’s stock, roughly a 50% premium to market price. Based on the company’s product portfolio, we have broken down our analysis of Rio Tinto into six business segments:

Rio Tinto’s Strength – A Hedge On Rising Fuel Prices

As the global economy recovers from the recession of 2008/2009, industrial demand for energy has increased significantly. This has led to rising coal and crude oil prices. These prices are expected to remain high in the near future and will pressure margins going forward. In 2010, Rio Tinto produced close to 30 million tons of coal from its Australian operations and 42 million tons of coal from its U.S. operations. The large amount of coal produced, gives Rio an opportunity to use these products in mining and smelting operations across other divisions, providing a good hedge to the rising fuel prices.