Review of Rio Tinto's Q3 Production Results

Morningstar analyst Mark Taylor says the mega-miner's iron ore earnings remains too high relative to other business segments

Mark Taylor 17 October, 2012 | 1:22PM
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Rio Tinto (RIO) recorded strong production where it mattered in third-quarter 2012; iron ore production up 8% to 52.6 million tonnes versus 48.6 million tonnes in the second quarter. This is higher than we expected. Production continues to exceed sales to build stocks in anticipation of infrastructure expansion.

Iron ore comprised over 80% of Rio Tinto group earnings before interest and tax (EBIT) in 2011 and, despite the recent 65% plunge in iron prices to less than $90 USD per tonne, will likely contribute a similar percentage in 2012. That does reflect weakness in other commodities; Rio's fiscal 2012 iron ore EBIT is likely to fall 25% to $14.8 USD billion on our numbers. Iron ore prices of late have recovered to over $120 USD per tonne which will boost the final quarter's numbers.

The proportion of Rio earnings from iron ore remains too high for our liking. That's not to say we'd like iron ore earnings to fall, just for other segments to pull their weight 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rio Tinto PLC4,833.00 GBX0.05Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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