Tough times for Rio

A struggling China points towards a difficult first-half figures from Rio Tinto.

Rio Tinto mining
Source: Bloomberg

As the biggest consumer of commodities Chinese demand was the driving force for the bull market in commodity prices and unsurprisingly the cooling growth is the dominant factor in the falling spot prices in the commodities markets now. Rio Tinto, like almost all of the companies in the commodity sector, has spent the last couple of years cost cutting as the company’s head count has been aggressively reduced. Like many in the mining sector though the cuts can only be so deep before you hit the bone.

On Thursday 6 August the company is due to post its first-half figures. The adjusted earnings per share are called to drop from $2.266 down to $1.503 while sales are also due to come in lower falling from $23.327 billion down to $21.779 billion. With sales falling and margins being squeezed, the pre-tax profit is due to drop from $3.154 billion down to $2.044 billion.

Of the 32 institutional analysts covering the stock 12 have buy recommendations, 16 holds, and only four sells. The average 12-month price target for the mining company is £29.20 targeting a healthy 20% upside from the current share price of £24.15. The company’s shares have done little over the course of the year to suggest that 2015 will see these targets being hit. Of the FTSE the four biggest fallers are mining companies with Rio Tinto’s year to date return of -16.5% looking comparatively good to Anglo American’s year to date return of -31.77%

The short-term outlook for the company might be supportive with the looming dividend payment on offer, but medium-to-longer-term is heavily dependent on the resilience of the Chinese and Asian markets and these have looked anything but sure.

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