Rio Tinto PLC

Rio Tinto Plc (LON: RIO) is a metal and mining company, operating at a global scale with a focus to explore, mine and process the Earth's mineral resources.

On 26^th February 2020, the company will announce the 2019 full year results.

Recent News
On 12th December 2019, Rio Tinto accepts the outcome of the Takeover Panel related to ERA (Energy Resources of Australia Limited) offer to raise USD 324 million for Ranger Project Area’s rehabilitation in Australia's Northern Territory. In the absence of commercially viable solution available, the RIO will underwrite and fully subscribe to an entitlement offer.

Third Quarter Production Results (as on 16^th October 2019)

(Source: Company Website)

The company’s iron ore shipments from Pilbara increased by 5 per cent to 86.1 million tonnesversus the Q3 FY2018 data. Driven by the operational recovery, the production of iron ore at Pilbara increased by 6 per cent to 87.3 million tonnes versus Q3 FY2018 data and an increase of 10 per cent versus Q2 FY2019 data. The bauxite shipments and production increased by 23 per cent and 9 per cent, respectively for the period. Due to the safety shutdown in Iceland operations and pot was relining at Canadian operations, resulting in a decline in Aluminium production by 3 per cent to 0.8 million tonnes versus Q3 FY2018 data. Due to an increased involvement in the advanced projects, the company spent $177 million on exploration and evaluation, which was 62 per cent higher versus the Q3 FY2018 data.

Share Price Performance

Daily Chart as at December-20-19, before the market closed (Source: Thomson Reuters)

On 20th December 2019, Rio Tinto PLC shares were trading at GBX 4,532.70 at the time of writing before the market close (at 1:00 PM GMT), up by 0.81% against the previous day closing price. Stock's 52 weeks High and Low are GBX 4,979.14/GBX 3,399.11. The company's stock beta stood at 1.45, reflecting the higher volatility as compared to the benchmark index.

Conclusion
The company agreed to wholly underwrite and subscribe to an entitlement offer in the absence of any other commercially feasible solution being accessible to ERA for the rehabilitation of the Ranger Project Area. In the third quarter of 2019, the company has delivered an enhanced production across most of the products, with a robust result at the Pilbara mines driving improved sales of iron ore into strong markets. The robust value over volume approach, coupled with the disciplined allocation of capital and a focus on operational performance, will maintain to deliver superior returns to investors over the long term.

Based on the decent fundamental prospects, we have given a "Hold" recommendation, at the closing price of GBX 4,496.50 (as on 19th December 2019).

Anglo American PLC

Anglo American Plc (LON: AAL) is a London, United Kingdom-headquartered international mining group, with operations in North and South America, Southern Africa, and Australia. Its principal operations include mining, exploring and processing of metal and minerals globally, with a portfolio including metals such as copper, platinum, diamonds, iron, nickel, manganese and thermal coal. The company’s metals are essential ingredients in electric cars, wind turbines, and smartphones. Its basic materials build railways, airports, and homes.

Recent News
On 20^th December 2019, the company announced that it had purchased ordinary shares of US$0.54945 each on exchange from Goldman Sachs International as part of its buyback programme published on 25 July 2019.
On 18^th December 2019,the company announced the value of rough diamond sales stood at $425 million (provisional) in De Beers' tenth sales cycle of 2019. This was a decrease from the corresponding period of the last year (Cycle 10 2018: $544 million) but a slight increase from the previous period (Cycle 9 2019: $400 million).

Production Report for the third quarter ended 30 September 2019 (as on 22^nd October 2019)
The group reported that the total production for the quarter has surged by 4 per cent year on year, majorly driven by the continued expansion at Minas-Rio and a strong production period at metallurgical coal. The diamond production reduced by 14 per cent year on year at 7.4 million carats for the third quarter of 2019 as compared to 8.7 million carats in the third quarter of 2018. Copper production also decreased by 8 per cent year on year. Metallurgical coal production surged significantly by 22 per cent year on year from 5.4 Mt in Q3 FY18 to 6.6 Mt in Q3 FY19.

Share Price Performance

Daily Chart as at December-20-19, before the market closed (Source: Thomson Reuters)

On 20th December 2019, Anglo American PLC shares were trading at GBX 2,168 at the time of writing before the market close (at 12:30 PM GMT), down by 0.25% against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,294/GBX 1,654.80. The company's stock beta stood at 1.53, reflecting the higher volatility as compared to the benchmark index.

Conclusion
From the perspective of the Diamond market, the cutters and polishers are anticipating the industry downturn in the near-term period, but mining executives are hopeful that tightening supply and strong retail demand will help the industry to recover quickly.

However, the sales were down from the corresponding period of the last year, indicating the tough market conditions facing De Beers and other major producers.The company would face challenging diamond market conditions. This will drive by the lower volumes, mix & price index; continued increase in the advertising budget, an expected 1% pa decline in supply. The copper production will increase by 4% in 2020. It is also benefitting from strong palladium and rhodium prices. In 2019, the production will be in the range of 1-2%, driven by Met Coal and Minas-Rio.  The production will be more than 3% in 2020. But the unit cost will be lower than 5% in 2019. By 2023, the attractive growth in Cu Eq production of 20-25% range would be seen by the company. In the coming years, the mining EBITDA margin will be in the range of 45-50%. 

Based on the decent prospects, we have given a "Hold" recommendation at the current price of GBX 2,168 (as on 20^th December 2019, before the market close).

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