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As predictable as clockwork:

Rio Tinto could still be considered a buy amid the current commodities carnage, according to investment manager AllIanceBernstein – which also recommends avoiding BHP Billiton and South32.

…Among the reasons offered for the assessment:

* even though declines in the iron ore price would affect Rio’s share price, the stock embeds a very high dividend yield;

* Rio’s “world-beating” iron ore operations were close to growth markets in Asia, had unhindered port and rail access and high quality geological endowment;

* the period of aggressive cost inflation is behind it;

* labour costs should decline;

* fears concerning the risks from an “unbalanced” production portfolio of metals were “overblown” and will improve when copper and aluminium start to make a more meaningful contribution to the bottom line.

Bernstein sees iron ore at $54 next year and $60 in 2016. In other words it sees all current iron ore production surviving and Anglo undoing last night’s massive cuts given it would all be profitable.

And the reasons to not buy which are not mentioned:

  • the dividend will be cut;
  • who cares if its close to Asia given Asia is the problem;
  • cost deflation will simply be passed to customers in the context of a glut;
  • it is caught in the greatest commodity bear market in one hundred and fifty years.

I could go on but they’ve beaten me today.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.