Why Rio Tinto’s Share Price is up 2.84%

Following a good start to trade this morning on the ASX, Rio Tinto Limited [ASX:RIO] share price is up 2.84% to $74.05. The move comes after the company hit a three month low yesterday of $72.00.

Australia’s mining sector as a whole also made good gains today. With BHP Billiton Ltd [ASX:BHP], South32 Ltd [ASX:S32], and Fortescue Metals Group [ASX:FMG] all making gains of 1.2%, 1.46%, and 2.28%, respectively.

Rio is engaged in minerals and metals exploration, development, production and processing. The company recently appointed former CSIRO chairman and 2011 Australian of the Year Simon McKeon to the board of the directors. Rio hopes his extensive insights of Australian business, politics, and society will help the company deliver some of its key Australian assets.

What caused the spike in price?

Rio announced this morning approval for a $3.5 billion investment in the Koodaideri iron mine in Western Australia.

The mine has been tipped by Rio to become its most technologically advanced, delivering a new production hub for the company’s iron ore business in the Pilbara.

Rio said the highly automated mine will be Rio’s lowest cost contributor to the Pilbara blend, and increase the higher-value lump component from a current average of 35% to about 38%.

The mine will have an annual capacity of 43 million tonnes, about 7.5% above initial estimates and will underpin the mining giant’s flagship Pilbara blend iron ore.

Phase one of the Koodaideri mine will help sustain Rio’s existing production by replacing depleting supply elsewhere.

Chief executive, J-S Jacques said of the new mine, “Koodaideri is a game-changer for Rio Tinto. It will be the most technologically advanced mine we have ever built and sets a new benchmark for the industry in terms of the adoption of automation and the use of data to enhance safety and productivity.”

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As part of the development, Rio plans to build a 166km rail line, accommodation and support facilities for employees, as well as an airport.

According to the company, more than 2000 people will be involved in construction, with arounds 600 permanent roles once the mine is operational.

Construction on the project will start in 2019, with first production in late 2021.

What’s next for Rio Tinto?

The announcement of the new iron ore mine will do well to draw attention away from Rio’s alleged copper discovery.

Rumours began swirling 12 months ago that the company have discovered a huge intersection of copper in the Pilbara region, sparking a land grab in the area.

While Rio refused to confirm or deny the rumours, Greatland Gold [LON:GGP] announced this month that is had uncovered a ‘world-class’ copper-gold intersection at it Havieron project close to Rio’s purported discovery.

However, it is worth noting the volatility of Rio’s share price over the past 12 months.

The market volatility and concerns over the impact of the global trade have been influencing the demand for commodities.

Despite the volatility, notes out of Citi and UBS reveal that they have buy ratings and $90.00 price targets for Rio, whereas a note out of Macquarie Group Ltd [ASX: MQG] shows that its equity analysts have an outperform rating and $92.00 price target currently.


Ryan Clarkson-Ledward

For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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