rio tinto is firing on all 16 cylinders

Rio Tinto is Firing on All 16 Cylinders
Published 12/10/2010

I managed to catch an interesting interview on TV the other day with Tom Albanese of Rio Tinto (RTP), the planets second largest producer of iron ore. It is one of the companies at the nexus of the global economy which I have long been following, and is at the sweet spot of several global macroeconomic trends at once.

There is a two-tier global economy today, with the Asian powerhouses delivering classic V shaped recoveries, while the US and Europe lag behind in the dust. China has managed its tightening well, as there is no sign of a bubble in the main economy, and has reached the Goldilocks point in the supply/demand equation. It is moving from strength to strength.

For RTP, the net net has been to drive iron ore prices higher to the point where steel companies are moaning about resource costs. Most RTP mines are running at full capacity, and the way to further riches for the company is through further expansion of vast open pit mines in Australias Pilbara region.

RTP is also the worlds fourth largest diamond miner, which thanks to a 92% jump in demand from China, is also enjoying boom times. Its amazing how the simple adoption of a western custom, presenting a bride with a wedding ring, can have such global implications for international trade (click here for Diamonds are Still an Investors Best Friend).

RTP is also the worlds top producer of bauxite, no. 2 in alumina, no. 3 in uranium, no. 5 on copper, and no. 13 in gold. Its value has been further bolstered by a relentlessly appreciating Australian dollar long chronicled in this letter (click here for Australian Dollar Holders Make a Killing").

The only risk that Albanese sees to the whole scenario would be measures that restrained international trade, for whatever reason. So far there has been a lot of blustery talk on the matter, but no action. I have always believed that this is a company that is in a dozen right places at the right time, and that despite a 500% move off the bottom over the past 18 month, should be bought on any substantial dips.