Rio Tinto Updates: Chinalco JV Ready to Cash in on Copper Recovery

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Rio Tinto

With a strong outlook for copper in the near future, Rio Tinto (NYSE:RIO) is stepping up its copper exploration efforts in China through a joint venture with Chinalco. It is expected that the under-supplied metal will see a surge in the demand by the end of 2011 and over the next few years as well, in which the majority of the demand will be driven from the industrial requirements in China. [1] Rio Tinto, a diversified global mining giant competes primarily with global metals and mining giants like Vale (NYSE:VALE), BHP (NYSE:BHP), Freeport McMoran (NYSE:FCX), Alcoa (NYSE:AA) 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.

See our complete analysis for Rio Tinto here

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Betting big on Copper

Copper is a globally undersupplied commodity. The metal has witnessed a massive jump in prices in recent years due to the industrial demand from the developing nations, primarily China. Copper prices have corrected during the last two quarters as the Chinese importers started to clear off their inventory of copper.

By the end of the year and the first quarter of 2012, we expect  that demand will rise as the inventory is cleared. To cash in on the booming demand for copper, Rio Tinto and Chinalco have entered in to a joint venture – Chinalco Rio Tinto Exploration (CRTX), which is 51 percent owned by Chinalco and 49 percent by Rio Tinto that will initially explore copper and eventually expand into potash and coal exploration as well. The joint venture will benefit from the technical exploration expertise of Rio Tinto and the local access of Chinalco. The JV will also help Rio Tinto gain an access to the highly valuable resources of the undersupplied metal and China to develop its resources internally, essential to reduce its reliance on imports.

Some other recent developments for Rio Tinto…

Rio Tinto Eyes Tiwi Bauxite project

In a recent development, Rio Tinto has announced a deal with Intercept Minetals’ Bauxite project in Tiwi Islands. As per the terms, Rio Tinto will spend $5 million over the period of four years in the development of the bauxite mining in the region for which it will earn a 75 percent interest in the minerals produced from the 552 square mile region. ((Rio Tinto to take share in Tiwi project, News.com.au))

Rossing mine may miss target

Rio Tinto’s uranium mine – Rossing, which is the third largest worldwide, may miss its target of 3,100 metric tons for 2011 due to heavy rains in the region and a strike. This comes as a setback for the company’s uranium operations as the prices of the radioactive element have fallen by more than 21 percent since March, following the Fukushima Dai-Ichi power station damage due to the earthquake in Japan. Rio Tinto’s outlook for Uranium is negative in the near term as it expects the commodity to be in surplus till 2014 at least. ((Rio Tinto’s Rossing Mine Likely to Miss 2011 Uranium Target, Bloomberg))

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Notes:
  1. Rio Tinto joins up with Chinalco to explore for copper, The Telegraph []