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Rio Tinto subsidiary impresses investors

Rio Tinto’s (ASX: RIO) week has fallen into place nicely, after it made its first haulage from its giant Mongolian mine on Tuesday and received good news from a subsidiary yesterday.

Earlier in the week, the Mongolian government approved the commencement of the Oyu Tolgoi copper and gold mine. Rio and the government are the two leading shareholders but were having many disagreements on cost, taxes, which bank system they would use and employment opportunities on the mine.

The first phase of production will see the mine produce massive amounts of copper but the second phase could yield even bigger results. The miner believes that further investment in Oyu Tolgoi would make it the third biggest gold producer in the world. The first production of the mine is good news for shareholders particularly because the price of copper is holding firm whilst other commodities are in a nose dive.

Yesterday Energy Resources of Australia (ASX: ERA), a subsidiary of Rio, reported that it produced 960 tonnes or a 6% increase in the production of uranium oxide. It was 50% higher than the corresponding period in 2012. During the June quarter it also managed to keep costs low despite the huge increase.

Rio currently holds 68.4% of ERA’s shares and will be hoping for good results to continue, particularly as the company tries to diversify its business model away from its reliance on iron ore. However that being said, Rio still has the biggest iron ore project in the world ready to take off.

Whilst it is trying to sell off its Canadian iron ore business for an estimated $4 billion, its project in Guinea is estimated to be worth roughly $20 billion. The Simandou mine needs to be approved by the government but the company is confidant if it got the tick of approval it could be producing huge amounts of iron ore by the end of 2015.

Foolish takeaway

Rio has failed to sell its diamond assets but has projects in the US and is now trying to offload its Canadian business for around $4 billion. Investors should keep a close eye on the asset sales it achieves in the next year as well as its quarterly operations reports which allow us to grasp at its ability to cope under continued lower prices.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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