Rio Tinto plc (ADR) (RTP)

potential buyout by BHP

don't see how to lose here longer term. playing austrailia, declining dollar, asia, huge mongolian deal with ivanhoe, hard assets which protect against inflation. only market risk i see is that emerging economies stop emerging. wish i knew the leadership better. poor/dishonorable overpaid executives can botch up a company with the best products and markets. no indications to me that we have a problem with that here but dont know that they are top notch either. need to get to know them better.

in great position flush with cash

ressources golden cycle continues

Commodities rule

As the dollar weakens and the economies of the world get back on track the long term outlook for companies like rio Tinto look VERY rosy.

This is the poster child of diversified commondity companies

With chinas refusal to sign a deal in 2008 now there paying 50% more for the iron ore since they are trying to pressure BHP with arresting some of the top execs. with spying. Now with paying 110 Metic ton instead of 50 some there hurting themself but have not yet backed down and released the execs. So for the future i believe you will see Vale,BHP and RTP go up in value

China

On the thesis of future inflation from all the new sovereign debt floating around, getting long commodities is one of the safer trades out there. Not only have prices found a bit of a floor since their falloff in late 2008, but there is also the upside potential for prices to increase. When it comes to miners, its all about size, and there is no question RTP is one of the biggest and baddest. Size allows for more research and discovery, which leads to more reserves, which not only gives these companies more inventory to sell, but the flexibility to cultivate fields as economic conditions change. Smaller companies can't afford to table a site if the extraction yields are low, RTP can wait until prices make these sites cost-effective, and better margins on average.

Acquired rights to one of the richest iron ore sites on globe. If they end up getting full 100% the better. Emerging economies, China, India will keep demand for steel rising.

Going with a gut feeling that metals will do well in the near-term. The SlowStochastics indicate this one is moving up; hopefully, it's not a dead-cat bounce. Still, with a forward P/E of only 11.4, an Operating Margin of 27% and RoE of 14.4%, things go be looking up for the mining group. Items of concern to me are the anemic profit margin (4.5%) and the negative quarterly revenue & earnings growth rates (-22.4% & -45.4%, resp.). Debt is currently at $39.4B, which is a little less than their market cap of $46.6B (with a Current Ratio of about 0.9), but debt is a fact of life in the mining industry, so I'm not as worried about this, though obviously the lower the debt load, the easier it will be for RTP to improve its bottom line. I'm ranking this as a Marginal Thumbs-Up.

[Source: Yahoo! Finance]

Its consolidating by selling off parts of company.

We should see RTP to trade above $250-290 next 3-6 months.

Strong buy rtp

Everyone needs the resources they produce - when manufacturing restarts, Rio will surge past

Demand from china will continue with strong recovery in 2010

Strong rise after the economy recovers. This could take from two to five years. Will head north as some point in time.

In 4 month it's up from 110 to 200 - 216 and will go over 300 once demand for metals will rise.
10 years bonds will lower their debt

(Rejection of Chinalco deal and subsequent partnership with BHP looks like 2 good moves IMO otherwise their current debt would have disqualified them from interest for me)
Mkt Cap: 62.22B P/E: 13.87 Dividend: 2.72
52Wk High: 497.50
52Wk Low: 59.20
F P/E: -
Yield: 2.81
Beta: 1.50
Shares: 321.12M
Volume: 3.14M
Avg Vol: 1.10M
EPS: 13.97
Inst. Own: 5%
Company Industry Sector S&P 500
P/E Ratio (TTM) 18.54 36.78 2.29 108.30
Beta 1.54 1.11 1.09 1.01
Price to Sales (TTM) 1.21 6.04 1.50 1.79
Price to Book (MRQ) 2.82 3.17 1.28 3.60
Price to Tangible Book (MRQ) 36.09 6.58 4.62 11.90
Price to Cash Flow (TTM) 8.02 9.54 0.92 11.13
Price to Free Cash Flow (TTM)14.18 16.00 53.38 39.87
Beta 1.54 1.11 1.09 1.01
Price to Sales (TTM) 1.21 6.04 1.50 1.79
Price to Book (MRQ) 2.82 3.17 1.28 3.60
Price to Tangible Book (MRQ) 36.09 6.58 4.62 11.90
Price to Cash Flow (TTM) 8.02 9.54 0.92 11.13
Price to Free Cash Flow (TTM)14.18 16.00 53.38 9.87
Morn upgrade to 5* as a result updated analysis 6/5
Analyst Note 06-05-2009
Rio Tinto RTP has terminated the proposed $19.5 billion transaction with Chinalco, and the companies' discussions have ceased. Rio will pay Chinalco the agreed-upon $195 million breakup fee.

Rio has instead negotiated with BHP Billiton BHP a nonbinding agreement to establish a 50/50 joint venture encompassing both companies' Western Australian iron ore assets. BHP will pay Rio $5.8 billion at final closing as compensation for a mismatch in asset values. The proposal requires regulatory and shareholder approval. A $275 million breakup fee applies to both parties under certain circumstances. Rio says total cost synergies will generate $10 billion in net present value over the entire joint venture. Completion is expected by mid-2010. Separate marketing rights remain.

Further, Rio has announced a fully underwritten 21-for-40 renounceable rights issue at $22.94 per share. For holders of the LTD stock, the issue price represents a 47.2% discount to the theoretical ex-rights price and a 57.7% discount to the closing price of AUD 66.90 on June 4. For PLC holders, the equivalent discounts are 38.2% and 48.5%. Gross proceeds of $15.2 billion, in addition to the BHP payment, will enable Rio to meet debt obligations in 2009 and 2010, while freeing up expansion and investment potential. New shares of 674.4 million represent 34.4% of the enlarged issued capital. Rio's net debt will decline from $38 billion to $23 billion.
[...]
Rio Tinto is a top-tier global miner along with BHP Billiton BHP, Brazil's Vale RIO, and United Kingdom-based Anglo American AAUK. The rejection of a megamerger proposal from larger rival BHP appears to have been a mistake. However, a world-class asset base and capable management make Rio one of the few miners to earn more than its cost of capital through the commodity cycle. Geographic and product diversification give Rio relatively stable cash flows and lower operating risk than many of its mining peers. Most revenue comes from the relative safe havens of Australia, North America, and Europe, although operations span six continents.

Through selective acquisitions and grass-roots exploration, Rio has assembled a large portfolio of long-lived, low-cost assets. Operations include world-class hubs in aluminum, coal, copper, diamonds, gold, iron ore, industrial minerals, and uranium. This competitive resource base sets Rio apart from most of the rest of the pack and supports returns above average for both the resource industry generally and its more select diversified mining peers.

Rio's operating practices are geared toward creating long-term economic value; the company is constantly seeking efficiency improvements. Planning horizons and existing operations ensure average production levels should be sustained for at least 20 years. The company has a portfolio of quality projects under development or appraisal and a focused exploration program to seek out and secure new opportunities for profitable expansion. However, a recent focus on Alcan-related debt reduction will put much new investment on the back burner. The strategic partnership with Ivanhoe Mines IVN to develop its Oyu Tolgoi copper and gold deposit further enhances Rio's portfolio. Oyu Tolgoi is the largest undeveloped copper deposit in the world. Rio has limited pricing power over most of its products. The notable exception is in iron ore, where, along with BHP and Vale, Rio is a member of the global seaborne export oligopoly with 25% market share. Minimal pricing power is aggravated by the volatile and cyclical nature of commodity prices. However, we do ascribe a narrow economic moat to Rio, given the firm's large, low-cost, and nonreplicable operations. The lack of comparable mega-deposits and increasingly prohibitive capital costs are barriers to entry.
The Alcan acquisition in 2007 saw interest coverage plummet to 5 and leverage rise to 172%. Anticipated asset sales and strong cash flows should return debt to more manageable levels during the next three years.