At time of writing, the share price of Rio Tinto Limited [ASX:RIO] is up 1.2%, trading at $101.955.
As you can see in the chart below, Rio Tinto’s share price has reacted strongly to the recent surge in iron ore prices after a disaster at a competitor’s mine in Brazil.
The latest news out of the company is the release of its first quarter production results which reveal reduced iron ore shipments. We will have a look at Rio Tinto’s prospects going forward.
Weather incidents disrupt Rio Tinto’s supply
As Rio Tinto’s CEO, J S Jacques, noted in today’s announcement,
‘Our iron ore business faced several challenges at the start of this year, particularly from tropical cyclones. As a result, and following the continuing assessment of damage at the port resulting from the cyclones and other minor disruptions, 2019 guidance for Pilbara shipments is reduced to between 333 and 343 million tonnes.’
The announcement also noted that Pilbara iron ore shipments were down in the first quarter by 14% due primarily to Cyclone Veronica and a fire — these events will impact second quarter performance according to Rio Tinto.
So, to a degree, it has not been able to take full advantage of the iron ore price surge due to circumstances out of its control.
The company also provided updates on its other operations with the following highlights:
- Pilbara unit cost guidance remains at between $13 and $14 a tonne
- Unchanged guidance across the rest of its resource portfolio
- Mined copper production up 48% compared to the same period last year at Kennecott
- Completion of sale of the Rossing Uranium mine to China National Uranium Corporation in the first half of 2019
It is worth noting that China is currently making big moves towards nuclear power. More insight into the potentially massive uranium comeback can be found here.
Which way will the Rio Tinto share price go from here?
On face value, this could be seen as a tough one as there are two competing perspectives on the overall direction of the mining sector.
The positive outlook stems from the demand in China for Australian raw materials, which may have been aided by recent Chinese stimulus efforts and, for iron ore in particular, the recent end of winter production curbs.
This allows Chinese steel mills to resume producing steel at their desired capacity.
There are also positive murmurs coming out of the US–China trade talks that could further spur the price.
The negative outlook however, is related to slowing global growth and the possibility of a global recession.
For reasons related to US real estate, which we recently examined in relation to the Amazon share price, these fears may be overblown.
It is also worth noting that Rio Tinto is currently trading at an attractive earnings multiple or P/E ratio of 9.
This is the dollar amount you pay for each dollar of earnings.
Overall, if there is a significant pull-back in the Rio Tinto share price, this would potentially not occur until the end of the year or the beginning of 2020.
The Fed has paused rate hikes and US rents and real estate are still healthy.
As a blue chip stock, Rio Tinto is closely tied to the fate of the broader market and for the foreseeable future the outlook appears (mostly) positive.
For Money Morning
PS: If you are intrigued by mining stocks, our free report on our ‘Top Mining Stocks for 2019’ will give you a detailed look at this year’s potential breakouts.