Falling commodity prices and weak global economic trends have created a very challenging environment for commodity producers. Many metals and mining stocks have been punished by investors in recent months in view of the weak outlook.
About the Company
Rio Tinto (RIO) is a global industrial metal & mineral mining conglomerate headquartered in London. They employ more than 60,000 people in more than 40 countries across six continents. They have strong presence in Australia and North America, and also have significant businesses in Asia, Europe, Africa and South America. They have five product groups – Aluminum, Copper, Diamonds & Minerals, and Energy and Iron Ore.
Q1 Operational Results
On April 21, 2015, the company reported its operational results for Q1 2015. Global iron ore production totaled 74.7 million tons, up 12% year over year, thanks mainly to the commissioning of the Nammuldi wet plant and greater yield from the Hope Downs 4 mine. Bauxite output jumped to 10484 kilotonnes, up 4% year over year, mainly due to improved operational performance at the Weipa mine.
The aluminum output volume remained flat but mined copper output declined 9% year-over-year. The output of titanium dioxide was 17% lower than the year-ago level, as company continues to align production with the market demand.
Commodity Price Slump Continues
China is the largest consumer of commodities in the world and thus, slowing economic growth and cooling property market in the country does not bode well for commodities. Ongoing rout in Chinese stocks has further hurt investor confidence.
Earlier this month, iron ore prices plunged to their lowest level since March on rising supplies and slowing demand. Further, the demand for iron ore in China is generally weak in the second half of the year and rising low cost supplies from Brazil and Australia make matters worse. Most analysts remain bearish on the iron ore price outlook.
Downward Revisions
Due to weak outlook, analysts have revised their estimates for the company sharply downwards. Zacks Consensus Estimates for the current and the next fiscal year $2.44 per share and $2.57 per share, respectively, down from $2.71 per share and $2.90 per share 60 days ago.
The Bottom Line
While the company has taken a number of steps recently to cut costs and improve efficiency, rising supplies and weak demand for commodities will continue to weigh on the results in the near-term. Mining-Miscellaneous industry is currently ranked 222 out of 265 (Bottom 16%) Zacks industries. It is safer to avoid investing in this space till the outlook improves.
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