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Mining for uncooked supplies is extraordinarily advanced and operational issues are frequent. This has been the case with Rio Tinto (LSE:RIO) extra lately, and its share worth 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 pretty dip-buying alternative. Right here’s why.
Triple bother
In at present’s quarterly replace, Rio Tinto delivered a triple whammy to traders. Firstly, the world’s greatest iron ore miner stated that manufacturing of the ferrous metallic 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 prepare 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 probably be on the decrease finish of its 660,000 to 720,000 tonnes steerage. This displays conveyor belt issues at its Kennecott mine within the US and adjustments 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 at present’s information is disappointing to me personally. Nonetheless, 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’s because Rio Tinto has an distinctive probability to develop income over the following decade. Elements just like the speedy growth of renewable power, rising gross sales of electrical autos (EVs), booming AI adoption, and ongoing urbanisation will all drive demand for base metals and iron ore sharply larger.
Mega miners like this have the size to take advantage of this chance, too, by new tasks and expansions to present belongings.
Certainly, in brighter information on Tuesday, Rio Tinto additionally stated it had obtained all approvals to construct the Simandou iron ore mission in Guinea. First manufacturing from the asset — which the corporate says incorporates 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 firms’ often-low valuations.
Following at present’s share worth decline, Rio Tinto now trades on a ahead price-to-earnings (P/E) ratio of simply 8.6 occasions.
All issues thought-about, I feel the FTSE agency is a good inventory for long-term traders to contemplate.
