should you buy Rio - Tinto ?

Rio Tinto
 
First-quarter performance
 
The company has turned in a strong production performance for the first quarter and Chief Executive Sam Walsh said that efficiency is being emphasised on all aspects of the business. By optimising the use of high-quality assets and the low cost base, the company is trying to protect its margins despite declining prices and to maximise returns for its shareholders throughout the commodity cycle. Global iron ore shipments on a 100% basis rose by 9% to 72.5 Mt over the previous year while global iron ore production on a similar basis rose by 12% to 74.7 Mt. Bauxite grew by 4% to 10,484 kt,  hard coking coal by 10% to 2002kt, semisoft and thermal coal by 4% to 5060kt while mined copper declined by 9% to 144.1kt and titanium dioxide slag by 17% to 322kt.
 
 
The record bauxite production was driven by robust performance at Weipa and aluminium was about the same as the previous year in spite of the partial shut down at Kitimat is online to produce the first hot metal by the middle of 2015. Mined copper production was higher at Kennecott and Escondida though lower grades at Kennecott were responsible for the decline. The company and the government of Mongolia formally announced the first milestone with Oyu Tolgoi shipping 1 million t of concentrate. The higher coal production was due to the improved production rates at Mount Thorley and Warkworth and the increased thermal production at Hail Creek.
 
 
 
Iron Ore
 
First-quarter production of 71.1 million tonnes at Pilbara (company share 57.5 million tonnes) was 12% higher than the same period of the previous year though 6% down over the preceding quarter because of wet weather. Similarly sales were 8% higher than the previous year but 12% lower than the preceding quarter because of better impact and train transportation problems. The expansion is close to completion and delivery should commence from the end of the first half of 2015.
 
At the Iron Ore Company of Canada, first quarter concentrate and pellet production were 20% and 15% higher because of improved reliability and better performance. The guidance for 2015 is the global shipments are expected to approach 350 million t on a 100% basis from Australia and Canada.
 
 
  Share of Production (Source: Company Reports)
 
Aluminium
 
Bauxite production was a new quarterly record being 4% higher than the previous year. Production from the Gove Mine is now 7 million t per annum and should touch 8 million t by the fourth quarter of 2015 because of continuing improvements in infrastructure. Excluding the Gove refinery, alumina production was up by 2% because of stronger production at Queensland Alumina. Aluminium production was at the same level as the previous period with growing capacity across the portfolio. The guidance for 2015 is that the company's share of production will remain unchanged at 43 million t of bauxite, 8 million t of alumina and 3.3 million tonnes of aluminium.
 
 
Aluminium Production (Source: Company Reports)
 
 
Copper and coal
 
Kennecott Utah Copper production was significantly lower for the first time because of lower grades and the current focus on fixing the east wall of Bingham Canyon. As a result, first-quarter production was 15% lower and the company has commenced the tolling of third-party concentrate to increase smelter utilisation. Mined copper production at Escondida recovered by 35% compared to the same quarter of the previous year primarily because of better grades which, combined with higher throughput and better water availability, contributed to a 20% increase in tonnage. At Oye Tolgoi/Turquoise Hill Resources, mined copper production was 33% lower because of lower grades as well as a scheduled maintenance shutdown. Customer collections from the Chinese bonded warehouse were affected because of the New Year holidays and the consequent extended holidays for the authorities. According to the mine plan, production will be higher in the second half of the year. At Grasberg, the company does not expect 2015 production to exceed the metal available to Freeport Mc-Moran and therefore expects its share of production to be zero during the year.
 
Hard coking coal production was 2% higher than the previous year because of improved production rates at Kestrel South. Semisoft coking coal production was 23% higher than the preceding quarter because of the effect of increased tonnage at Hail Creek because of the priority of growing margins.
 
The guidance for 2015 is for the company's share of mined copper production to be in the range of 500,000 t to 535,000 t and refined copper production to be between 190,000 t and 220,000 t. The share of production for coking coal is expected to be between 18 million t and 19 million t of thermal coal, 3 million t to 3.4 million tonnes of semisoft coking coal and 7.1 million tonnes to 8.1 million tonnes of hard coking coal.


Coper Production (Source: Company Reports)
 
Diamonds and minerals
 
For diamonds, carats recovered during the quarter at Argyle were 31% higher because of the continued ramping of production. The lower recovery of carats at Diavik was because of lower ore availability as well as upgrades to the crusher plant. Recovery at Murowa were due to a planned plant shutdown to reconfigure the plant and reduce production rates. The production of borates was 3% higher than the previous year because of higher sales demand and the commissioning of new plant in the second half of 2014. Rio Tinto Iron and Titanium reported a 17% decrease in titanium dioxide slag production as production was aligned to market demand and weaker demand has resulted in reducing production by taking furnaces off-line. First-quarter salt production was lower as a result of weaker demand and a decision not to hold inventory. Uranium production at Energy Resources of Australia resulted in lower production because of lower grades while first-quarter production at Rossing was lower for the same reason. In 2015, the company's share of production is now expected to be 1.3 million tonnes of titanium dioxide slag, 0.5 million tonnes of boric oxide equivalent and 20 million carats of diamonds. The share of uranium production is expected to be unchanged at between 5 million t and 6 million t. 


Diamond , Uranium , Minerals (Source: Company Reports)
 
We believe that the company has taken all the necessary steps in order to protect its margins and returns and to retain value for investors during the current commodity cycle. Indeed, we believe that the current low price of the share is an undervaluation and that this represents a window for a buying opportunity.


RIO Daily Chart (Source - Thomson Reuters)

We would therefore recommend a Buy at the current price of $50.89
 

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