Rio Tinto Sees Opportunity in the Booming TiO2 Market

Eying the robust outlook for the Titanium Dioxide industry, Rio Tinto (NYSE:RIO) plans to expand the capacity across its mineral sands business. ^[1] Rio Tinto has been a prime example of how a mining company has to manage capacity in order to remain ahead of the demand curve while maintaining profitability. The company competes primarily 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.

Our price estimate of $82 for Rio Tinto implies about 70% upside to its current market price.

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Titanium Dioxide is a key material in the production of automobiles. The compound is primarily used in making the paint for the body of the vehicles. It provides the paint resistance from fading away due to the radiation form the sun. The short supply of the compound saw its prices soar during the last year. Even with the possibility of a slowdown in the global economy, the demand for Titanium Dioxide looks robust for the upcoming years, where it continues to remain an under-supplied item.

Rio Tinto plans to cash in on the opportunity and has planned to invest close to $63 million to increase the production at four of its mineral sand projects. We see this as an opportunity for the company to offset some of the possible losses that it may face over the next year or two if iron ore prices slump as more production comes online from new sources such as China.

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1. Rio Tinto to expand global minsands business, Industrial Minerals [↩]