Rio Tinto to remain strong despite difficulties—report

Oyu Tolgoi, a copper-gold mine in the South Gobi region of Mongolia, approximately 550 km south of the capital Ulaanbaatar, holds one of the largest undeveloped high-grade copper deposits in the world. (Image courtesy of Oyu Tolgoi LLC)

The outlook for Rio Tinto, the world’s second largest miner by market capitalisation, is positive over the coming years, according to a new report by Fitch Solutions. Rio has the expertise and capital to develop the most lucrative and largest mines in the world, and the miner has achieved higher profits year-over-year in H118, despite cost inflation.

Rio Tinto’s performance will continue improving over the coming quarters, despite downward-trending iron ore prices, as the miner continues to prioritise cost reduction, cash generation and investing in technology to improve efficiency, Fitch forecasts.

Weak steel production in China from 2018 onwards will subdue the country’s iron ore demand growth, which will affect Rio Tinto 

The miner is committed to reducing costs and bolstering margins by shedding non-core assets and focusing o n the development of its core revenue streams. Rio Tinto remains a low-cost leader in the iron ore industry, which will continue to generate healthy profit margins despite Fitch’s downbeat forecast for iron ore prices over the coming years.

A key asset is the Oyu Tolgoi copper project in Mongolia, which will partially diversify the miner’s earnings away from iron ore.

Weak steel production in China from 2018 onwards will subdue the country’s iron ore demand growth. This will affect Rio, as iron ore accounts for more than 42% of the firm’s revenue remains too reliant and over-exposed to iron ore, Fitch forecasts.

Analysts predict further integration of mining infrastructure and networks, such as Rio’s operations in Australia’s Pilbara region, can significantly reduce operating costs and enhance mining productivity over the medium term.

Fitch also forecasts some difficulties ahead for Rio Tinto. Resource nationalism in Mongolia and ongoing border disputes with China could flare up and threaten production at the firm’s OT mine. Operational uncertainty for copper also exists, which may be worsened by labour disputes at the giant Escondida copper mine in Chile.

Read the full report here.

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