www.riotinto.com
Rio Tinto is a leading international mining group that finds, mines and processes the earth's mineral resources.
The Group's major products include aluminium, copper, diamonds, energy products, gold, industrial minerals (borates, titanium dioxide, salt and talc), and iron ore. Its activities span the world but are strongly represented in Australia and North America. There are also significant businesses in South America, Asia, Europe and southern Africa.
Rio Tinto, Glencore and European Goldfields UBS's top picks in the mining sector
Rio Tinto (LON:RIO), Glencore (LON:GLEN) and European Goldfields (LON:EGU) are UBS’s top picks in the mining sector.
In a note out today the Swiss bank said the outlook for commodities and mining had “turned more constructive”.
“Strategically we have had a consistently bearish top down call on the miners and the commodities from February,” said analyst Myles Allsop.
“We now believe valuation, positioning, China policy stance and dollar fund flow are now more attractive.”
Its 'most preferred' commodities are thermal coal and iron ore, while nickel and aluminium are least preferred.
Rio (up 116.5 pence at £34) is chosen for its exposure to the iron-ore market and Glencore (up 6.14 pence at 441.85 pence) for its coal assets and unique financing and marketing abilities.
European Goldfields (up 4.5 pence at 642 pence) “makes for an attractive M&A target”, says UBS.
“(We) believe the interloper risk is high in the period till December when its financing agreements with Qatar holdings are finalised,” said Allsop.
Yesterday Rio shrugged off fears of a global slump when it reported record iron-ore sales and coal output in the third quarter and said it was operating at full throttle.
It said iron-ore sales from the Pilbara region in Western Australia notched up a new quarterly record of 60 million tonnes.
Production of coking coal used in steelmaking also hit a new quarterly high, rising to 2.8 million tonnes – 56 per cent higher than during the flood and cyclone-affected second quarter.
One of the most striking features of Rio's quarterly report was its disclosure that iron-ore prices had held up so well in the recent commodities shakedown – prompted by sovereign debt concerns.
Spot prices for iron ore have weakened in the past month by about 9 per cent to US $162 a tonne, but that price is still well above last year's average of $135 a tonne.
However broker reaction this morning was fairly muted. Credit Suisse this morning tweaked down its earnings forecast by around 2 per cent.
However it added: “Rio remains one of our preferred sector picks for its best in class balance sheet and exposure to a relatively strong iron ore price.
“Rio is the only major UK miner to be actively returning capital to shareholders with $7 billion share buyback.”
Royal Bank of Scotland, meanwhile, thinks the update is something of a side-show to the broader macro-economic issues such as the sovereign debt crisis and questions on the sustainability of China’s growth.
“As investor confidence begins to improve, we believe the miners could re-rate sharply and quickly,” said analyst Nick Hatch, which rates Rio a buy to £57.25.
“Rio Tinto has exposure to commodities with strong underlying fundamentals such as iron ore and copper, and we believe its significant exposure to bulk commodities will result in resilient earnings.
“Rio Tinto is generating record cash flow, with an aggressive organic expansion plan underpinning significant production growth.”
