What Are The Key Sources Of Revenue For Rio Tinto?

Rio Tinto (NYSE: RIO), a diversified mining and resource group, operates across 6 continents and is headquartered in London and Melbourne. The company’s operations are mainly focused in Canada and Australia. The company’s core business involves finding, mining, and processing mineral resources, with a principal focus on mining of primary ore for metals. The company also owns a number of high-capacity smelting facilities for aluminum and refining facilities for copper and gold.

We have a price estimate of $49 per share for the company, which is in line with the current market price. View our interactive dashboard –Key Revenue Sources For Rio Tinto. Below, we discuss major revenue divisions for the company.

• Iron Ore (46%) – This division is the most valuable segment for the company and consists of the iron ore operations. The company has long-term contracts with iron and steel manufacturers worldwide. The company’s operations in the Pilbara region of Western Australia comprises 16 mines, four ports, the largest privately owned heavy freight railway in Australia, and supporting infrastructure including the operations center in Perth. The company’s iron ore operations in Canada include a mine, a concentrator and a pelletizing plant in the province of Newfoundland and Labrador, together with port facilities in Sept-Iles, Quebec. The company is the second largest supplier to the world’s seaborne iron ore trade with strong sales in Asia, particularly China. With an average price of $56.80 per ton and total shipments 339 million tons, we expect revenues from this segment to be $19.3 billion in 2018.
• Aluminum (28%) – This division is called Rio Tinto Alcan. It is primarily divided into two business segments – Primary metal and Bauxite and Alumina – which are headquartered in Montreal (Canada) and Brisbane (Australia) respectively. Increasing demand for aluminum could boost the company’s aluminum revenues. However, the adverse macroeconomic conditions could lower the demand for industrial products, including alumina, and weigh on the company’s top-line. According to our estimates, we expect 8.6 million and 4.15 million tons of shipments of alumina and aluminum respectively at an average price of $478 and $2,091 per shipment of alumina and aluminum respectively. This will translate into $11.8 billion revenues from this division in 2018.
• Copper (10%) – Copper has been one of the oldest products in Rio Tinto’s portfolio, with primary copper operations located at Kennecott, Utah; Grasberg, Indonesia; and Escondida, Chile. Recently, Freeport-McMoRan and Rio Tinto have struck a binding accord to sell a majority stake in the world’ second-biggest copper mine, Grasberg, to Indonesia’s state mining company, Inalum for a sum of $3.85 billion. Rio holds a 40% stake in this mine, which would be converted to an equity stake, that would be transferred to Inalum. This sale will be reflected in the company’s revenues for the current year. Further, the development of Oyu Tolgoi mine in Mongolia could significantly boost revenues in the coming years. With 0.7 million tons shipments of copper and an average price of $6,031 per shipment, we expect $4.2 billion in revenues from the copper division.
• Energy (8%) – Rio Tinto’s energy division comprises its coal sales. Coal is produced in Australia, Mozambique, Namibia, and Canada. The company is one of the world’s leading producers of thermal and metallurgical coal. Higher Chinese demand for metallurgical coal and rising global economic growth will support coal pricing. Consequently, we expect 30 million tons of coal shipments with an average price of $107.84 per shipment, totaling $3.2 billion in revenues from the energy division in 2018.
• Diamond & Minerals (8%) – This division consists of Rio Tinto’s diamond, titanium dioxide, talc, and borates businesses. The company owns diamond mines in Australia (Argyle), Canada (Diavik), and Africa (Murowa). The company’s uranium mining operations were reclassified into this division from the energy division in 2016. The company’s uranium production is based out of Australia and Namibia. Accordingly, we expect $3.2 billion in revenues from this division in 2018.

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