Rio Tinto Limited (ASX: RIO) released its first-quarter operations review yesterday and the company has made this investor happy.
As I noted earlier in the week, Rio’s current pricing, growth prospects and undervaluation makes it a cautious but appealing investment. It’s a cautious investment because the market has obviously undervalued this massive Anglo-Australian company for a reason. Maybe it’s the potential iron ore price volatility due in coming years or perhaps the mining industry is headed towards doom rather than boom. It’s an appealing investment because it has a good dividend yield, healthy balance sheets, massive upside if things go right on its new projects (which start production this year), and it is simultaneously saving money whilst increasing output.
Yesterday, the company announced its operations review for the first quarter of 2013. A mention was given in the report to the Utah mine landside, which has and will adversely affect the company’s copper output, sliding it down another 1.6% after already writing down refined copper output earlier in the year.
A promising result was the record rate of iron ore production, which increased 4% this quarter. However, due to multiple cyclones hitting the Pilbara region in WA, production already fell 8% in the previous quarter. Nevertheless, it’s still a promising result, especially as iron ore accounts for almost half the sales revenue and 80% of earnings.
Cutting costs and generating growth
Sam Walsh, CEO and former iron ore division boss, has vowed to reduce costs by $2 billion this year and an additional $3 billion by the end of 2014. In yesterday’s report he stated the company is making good progress and is on track to achieve its goal. The company’s major growth prospects are operations in the Pilbara region in WA and from the Oyu Tolgoi mine in Mongolia. The latter is expected to come online by June 2013.
Rio currently operates on a debt to equity ratio of 57.2%, compared to BHP Billiton Limited’s (ASX: BHP) 43%. However, according to Morningstar Australasia, forecast earnings per share is expected to rise significantly in the next three years, currently at 484.1 cents per share, it is anticipated to reach 975.6 cents per share by 2015. With a reasonably new CEO in place, healthy books and solid growth prospects, this is one resource stock that won’t be slipping out of my portfolio.
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