Stock of the Week: Rio Tinto

Mining giant has paid bumper dividends since the pandemic, but can the commodity bull run be sustained?

James Gard 20 August, 2021 | 10:18AM
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Rival BHP (BHP) may have stolen the headlines this week for announcing plans to leave London but our Twitter followers have gone for Rio Tinto (RIO) in our mining-themed stock of the week. Despite being in the spotlight because of rising ESG concerns, miners are in a sweet spot in 2021 amid surging prices for commodities likes copper and iron ore. Copper in particular has been a lightning rod for the economic recovery from the pandemic and part of the “reflation trade” that has put global investors in bullish mode. But this week global stock markets have slammed into reverse and previously booming resources companies have sold off sharply. Fears over China’s growth, the Federal Reserve’s next move, and rising coronavirus cases worldwide have upset the upbeat narrative.

Rio Tinto’s shares have fallen around 10% this month alone, shedding some of the gains since autumn 2020 when the global economy started to pick up again. They’re off around 7% since the start of this week, having fallen from £56 per share to £52. That means that they are now closer to the fair value of £50 assigned by Morningstar analysts. “The shares remain overvalued, principally a function of near-record iron ore and copper prices. We expect both to cool and for longer-term earnings to decline as the benefit of China’s stimulus wanes and the post-Covid-19 bump to global economic growth subsides,” says mining analyst Matthew Hodge. Still, recent results were strong, although the comparison with the the Covid-affected first half of 2020 were bound to be flattering: net profit after tax for the first half of 2021 were $12.2 billion, compared with $4.5 billion in the first half of 2020, although the majority of this rise is down to the higher iron ore price.

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