Todays trading update from Rio Tinto (LSE: RIO) (NYSE: RIO.US) has been described as robust by the companys CEO, Sam Walsh, who stated that output in the quarter has been in-line with targets across all major products.
Of course, the update comes at a crucial time for Rio Tinto, with a falling iron ore price hurting its bottom line and its share price being somewhat supported by bid potential from Glencore. Looking ahead, though, is it a stock that is worth buying for its long term potential, or are there better options out there?
Production Performance
Clearly, the price of iron ore matters hugely to Rio Tinto, since the vast majority of its operations are focused on producing that particular commodity. So, with it having fallen considerably during the course of 2014, Rio Tintos bottom line is under pressure. Despite this, the company has increased production of iron ore in the fourth quarter of 2014, with total production of 79.1m tonnes being 12% higher than the comparative figure from last year.
This takes Rio Tintos total production for 2014 to 295.4m tonnes, which is 11% higher than in 2013, although it drew on stockpiles in the Pilbara to ship 302.6m tonnes of iron ore in 2014. This additional 7.2m tonnes is worth around 265m at current prices and affords Rio Tinto the financial flexibility to facilitate an accelerated ramp up of the expanded port and rail facilities at the Pilbara to 290m tonnes per year. In other words, Rio Tinto continues to significantly invest in its production capability, which could provide an improved position relative to its peers in the long run.
Meanwhile, there was mixed production performance from Rio Tintos other divisions, with aluminium production broadly flat on last year, mined copper production 4% higher than last year due to the ramp up at Oyu Tolgoi in Mongolia, and mined gold production up 69% year-on-year as a result of higher grades and the ramp up in Mongolia.
Looking Ahead
Despite increased production of iron ore, Rio Tinto is forecast to post a decline in earnings of 16% for 2014. And, looking ahead, its bottom line is set to fall by a further 18% in the current year. This puts Rio Tinto on a forward price to earnings (P/E) ratio of 11.3, which seems to be good value when you consider that there is the potential for a bid from Glencore, while shareholders are also expected to receive a dividend yield of 5.2% in the current year.
So, while a low iron ore price could be set to stay for some time, Rio Tinto still seems to be a sound investment. As todays production update showed, it is making good progress in terms of increasing its market share and in investing for long term growth. And, while earnings may disappoint in the short term, the combination of great value, a top notch yield and bid potential makes Rio Tinto a stock that is worth buying at the present time.
Of course, finding stocks that are worth buying, such as Rio Tinto, is never an easy task. That’s why The Motley Fool has written a free and without obligation guide called 10 Steps To Making A Million In The Market, which could help you to unearth many others.
The guide is simple, straightforward, and you can put it to use on your own portfolio right away. It could make a real difference to your returns and help you to beat the FTSE 100 this year!
Click here to get your copy – it’s completely free and comes without any obligation.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.
Peter Stephensowns shares in Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.