Rio Tinto Slumps on Recession Fears but Positioned Well for the Recovery
Rio Tinto‘s (NYSE:RIO) stock has taken a hit in the stock markets with the global sentiment looking weak. However, the company is aggressively focused on a growth path and claims that its order book is full, which reassures us that there is plenty of upside to the company’s overall shipments through 2015. While a significant slow down, or recession, would cause us to lower our estimates meaningfully, we believe that Rio is well placed for the medium term as one of the largest, globally diversified mining giants that will benefit from global growth. The miner competes with global metals and mining giants like Vale (NYSE:Vale), BHP (NYSE:BHP), Freeport McMoran (NYSE:FCX) and other companies that mine bauxite, copper, coal and iron ore.
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Our $97 price estimate for Rio Tinto is well ahead of the current market price.
“Our order books are full and pricing is strong”
Rio Tinto CEO Tom Albanese said that the company is looking at some progressive times ahead with the demand for its produce surpassing the amount they mine going forward. The company is banking on strong demand from developing economies for copper, aluminium and iron ore over the next 15 to 20 years. However, Albanese also cited that the bottlenecks at the supply side can possibly restrict the growth opportunities if not checked.
Rio Tinto has a strong balance sheet and is in a solid position to access funds for expansion if need be, as evidenced from the relative ease with which they completed the Riversdale acquisition in August. Rio Tinto’s estimated net debt in August stood at $7 billion, down $1 billion from the figure in June 30th. Good cash flow management and higher interest rates will ensure that short term, however the rising demand for raw metals will continue to fetch the company good prices for its contracts.
The company’s outlook looks strong with close to $27 billion high quality expansion and new development approved projects and $35 billion high quality projects pending approval. Click here to see our coverage for the company’s projects under development and analyze the impact on Rio’s stock price.
Click here to see our complete analysis for Rio Tinto’s stock.