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Rio Tinto Limited share price hits six-year low: Should you buy?

Shares in Rio Tinto Limited (ASX: RIO) fell again today to hit a new six-year low of $44.27 – the lowest that shares have traded since the aftermath of the GFC in 2009.

source: Google Finance

source: Google Finance

Shares dived after the value of iron ore fell below US$40 per tonne in recent days – at these levels, even Rio, BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) will feel the bite as these  companies reportedly have all-in operating costs (including overheads) around the A$30/tonne range.

Even at today’s low iron ore prices, the full impact has yet to be felt by Rio as its most recent full year results also include a period of substantially higher ore prices.

Most likely, this means that shareholders can expect a substantial dive in profits and cash flows on the next reporting date – which likely also means a lower dividend.

Rio’s current dividend of 6.1%, fully franked, doesn’t look so attractive when investors factor in the high likelihood that it will be cut.

On the plus side, Rio does have extensive ore reserves, is comfortably profitable, and has enough financial flexibility to make acquisitions or expand its existing operations. As it stands however, investors might have to get used to the idea of lower returns from their miners in the medium term.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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