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Mining for uncooked supplies is extraordinarily complicated and operational issues are widespread. This has been the case with Rio Tinto (LSE:RIO) extra lately, and its share value has sunk on disappointing manufacturing information for the final quarter.
At £49.98 per share, the FTSE 100 miner was final dealing 3.7% decrease on Tuesday (16 July).
This newest fall means Rio Tinto shares have fallen greater than 10% in simply six weeks. As a long-term investor, I feel this might symbolize a sexy dip-buying alternative. Right here’s why.
Triple hassle
In in the present day’s quarterly replace, Rio Tinto delivered a triple whammy to buyers. Firstly, the world’s largest iron ore miner stated that manufacturing of the ferrous steel dropped 2% within the second quarter, to 79.5m tonnes.
For the primary half, output was down by the identical proportion, at 157.4m tonnes.
Manufacturing missed Metropolis forecasts due to a practice collision at Rio’s Pilbara operations in Australia. The incident in mid-Could resulted in “round six days of misplaced rail capability and full stockpiles at some mines“, the corporate stated.
On prime of this, Rio stated that complete copper manufacturing for 2023 would possible be on the decrease finish of its 660,000 to 720,000 tonnes steering. This displays conveyor belt issues at its Kennecott mine within the US and modifications to its mine plan.
Lastly, Rio warned that alumina output for this yr can be 7m to 7.3m tonnes, down from a earlier forecast of seven.6m to 7.9m tonnes. This is because of fuel provide issues at its Gladstone asset Down Underneath.
Staying bullish
I personal Rio Tinto shares myself, and so in the present day’s information is disappointing to me personally. Nevertheless, I knew that such dangers are half and parcel of proudly owning mining shares.
My opinion was that the potential advantages of proudly owning the Footsie firm offset these risks. And it’s a view I proceed to carry regardless of its latest troubles.
It is because Rio Tinto has an distinctive likelihood to develop earnings over the subsequent decade. Components just like the fast growth of renewable power, growing gross sales of electrical autos (EVs), booming AI adoption, and ongoing urbanisation will all drive demand for base metals and iron ore sharply increased.
Mega miners like this have the size to profit from this chance, too, by new tasks and expansions to present property.
Certainly, in brighter information on Tuesday, Rio Tinto additionally stated it had obtained all approvals to construct the Simandou iron ore challenge in Guinea. First manufacturing from the asset — which the corporate says comprises a mammoth 2bn tonnes of the steelmaking ingredient — is predicted in 2025.
Too low-cost to disregard
It’s additionally my opinion that the dangers of proudly owning mining shares are baked into these corporations’ often-low valuations.
Following in the present day’s share value decline, Rio Tinto now trades on a ahead price-to-earnings (P/E) ratio of simply 8.6 instances.
All issues thought of, I feel the FTSE agency is a superb inventory for long-term buyers to contemplate.
