I’ve noted that RIO is higher today than it was when iron ore was at $93. Why? Via Citi:
Rio Tinto was the pre-eminent metals and mining company — in the 1980s and 1990s delivering superior returns and in turn the company enjoyed a premium sector rating. Fast forward to today, the company is trading below historical sector and market relative multiples – the question is whether the company can reverse this. In our view there is a simple pathway to achieve this.
Forget trying to diversify through M&A — we don’t consider being heavily exposed to iron ore as a negative as it is a high returning commodity. We think the company can organically grow outside iron ore but we think the acquisition premiums in commodities such as copper require far too bullish assumptions on commodity prices to justify the risk.
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