Rio Tinto's Iron Ore Still Leading the Way

Higher-than-expected fourth-quarter 2011 iron ore and coal production offset lacklustre base metals at Rio Tinto

Mark Taylor 19 January, 2012 | 2:21PM
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Our fiscal 2011 earnings forecast for Rio Tinto (RIO) is steady, with higher-than-expected fourth-quarter 2011 iron ore and coal production offsetting lacklustre base metals. Fourth-quarter iron ore volumes came in 3% ahead of third-quarter 2011, while coal production was 6% higher. The iron ore division accounts for 46% of our Rio Tinto valuation and more than two thirds of fiscal 2011 earnings. Coal is small in comparison at less than 10% of valuation and 5% of earnings. Our fiscal 2012 group earnings forecast is also steady. Iron ore contributes a reduced 54% of forecast fiscal 2012 earnings as improved base metals and energy contributions offset anticipated weakening iron ore pricing. CEO Tom Albanese characterized the second half of 2011 as bouncing back following severe weather in the first half. Most significantly impacted were iron ore, coal, and uranium. Following the fourth-quarter results announcement, our Rio Tinto valuation is little changed.

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Mark Taylor  is an equity analyst at Morningstar.