NEW YORK ( TheStreet) - We feature Rio Tinto (RIO) as a value pick on favorable market conditions due to strong demand from China and other emerging Asian economies. Industry analysts recommend the stock on estimated strong potential upside over the next few months.
Company Description and Investments
Rio Tinto is an Australian diversified mining giant engaged in the exploration, development, production and processing of minerals with product groups aluminum, copper, diamonds and minerals, energy, and iron ore. Its major businesses are open pit and underground mines, mills, refineries and smelters, and a number of research and service facilities. The company has a market capitalization of $117.97 billion and institutional ownership of 4%.
Rio holds 48.5% stake in
with a total investment of more than $4 billion since Oct. 2006. The company recently exercised its subscription right to acquire an additional 27.9 million common shares of Ivanhoe for $536 million. In December 2010, Rio completed 100% of the divestment of its equity holdings in
Cloud Peak Energy
(CLD - Get Report)
. In January 2011, it accomplished the divestment of 61% of
Alcan Engineered Products
with maintaining ownership of
In April 2011, Rio acquired a majority interest in
gaining control of a significant Tier-1 coking coal project. In June 2011,
, India's largest steel company, sold its entire 26.27% stake in Riversdale Mining to Rio for $1.13 billion after receiving 100% appreciation on its four-year old investment. Rio now owns 99.76% of the Africa-based coal producer, with coking coal being a key raw material for the production of steel.
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Recently, Rio expressed interest to sell its 57.7% stake in South Africa's
copper mine, which accounted for 8% of Rio's mined copper production in the first half of 2011, stating operating the mine no longer suits its investment strategy. In addition, South African miners face uncertain power supplies, rising labor and energy costs and a strong rand that squeezes profits. Palabora has mine life until early 2016, but Rio has initiated studies to expand it to 2030.
Rio has entered into a $1.5 billion joint venture agreement with China's
Aluminum Corporation of China (Chinalco)
for the Simandou iron ore project. The project is on track to make its first shipment by mid-2015. The joint venture for the Simandou mine aims at an initial production of 70 million metric tons per year, with estimates for potential future output reaching up to 170 million tons.
With the acquisition of Riversdale Mining, the company has new options for growth in thermal and coking coal in Mozambique. The first production from Benga coking and thermal coal mine is expected by the end of 2011. Also, the proposed expansion of Pilbara iron ore to 283 million metric tons per annum is on track and will be completed by the end of 2013.