Rio Tinto Limited’s earnings preview

Giant iron ore miner Rio Tinto Limited (ASX: RIO) is expected to report its half-yearly results later this week, and here’s our view of what you can expect.

Having shipped a massive 142 million tonnes of iron ore in the first half, up 20% on the previous year, revenues should be strong, despite the recent fall in the iron ore price. Copper production rose 23% over the previous year to 323,000 tonnes, while bauxite and aluminium production was flat.

Coal production was up, but falling commodity prices may mean that Rio will generate very little earnings from that commodity.

Shareholders could expect a dividend of around 90 cents, based on the last two dividend payouts, which should come fully franked as an added bonus. Given recent asset sales, investors might receive a nice surprise in the form of a share buyback or special dividend.

Interestingly, the company is trading on a P/E ratio of 12.8 times for 2014, and 11.5 for 2015. By comparison, BHP Billiton Limited (ASX: BHP) is trading on a prospective P/E ratio of 14.

Rio Tinto’s boss Sam Walsh is confident about the company’s long-term future, recently saying, “As the world urbanises, and as Rio Tinto is the lowest cost producer in the world, proximate to the major growth markets, we’re incredibly well positioned.”

Rio Tinto can continue to increase its iron ore production, with around 85 million tonnes of Chines production displaced since the start of the year, according to Mr Walsh. The miner recently achieved annual production rates of 290 million tonnes ahead of schedule, and has a long term aim to hit 360 million tonnes in the near future.

If you believe the iron ore price has found a floor at above US$90 a tonne, Rio Tinto and Fortescue Metals Group Ltd (ASX: FMG) both look cheap – Fortescue even more so, with a prospective P/E of 8.0 for 2015. But you might want to avoid the junior miners such as Mount Gibson Iron Limited (ASX: MGX) and Arrium Limited (ASX: ARI), given their relatively high production costs.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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