Like many of the ASX miners this year, the Rio Tinto Limited (ASX: RIO) The stock price has attracted a lot of attention.
Rio shares are currently trading for $ 107.20 at the time of writing, having almost surpassed the 52-week high of $ 107.99 before today (Rio shares reached $ 107.94 immediately after lunch) . This closes a phenomenal year for our second largest miner, with shares in Rio up to almost 40% in 2019 so far (excluding dividends).
So today does Rio share a purchase?
Who is Rio Tinto?
As mentioned, Rio Tinto is our second largest mining company on ASX and 12th the largest public company in the country, with a market capitalization of 39.79 billion dollars. Rio Tinto has a double listing, with our compatriots in the motherland (aka the United Kingdom) able to also buy Rio shares on the London Stock Exchange. The company was founded in Spain in 1873, so it is a true multinational on all fronts.
Most investors know Rio Tinto as an iron miner, and this is mostly true. Of the $ 9.825 billion that Rio registered in the underlying earnings for 2018, US $ 6.51 billion came from iron ore, with US $ 1.35 billion from aluminum and US $ 1.05 from copper and diamonds. The remaining gains were derived from other minerals such as uranium, titanium and boron. So, as you can see, iron makes up about 66% of Rio's earnings.
This puts him among the other major ASX mining companies. BHP Group Ltd (ASX: BHP), for example, approaches 40% of gains from iron, while Fortescue Metals Group Ltd (ASX: FMG) derives over 90% of its earnings from iron ore.
Because the shares of Rio have risen so high
This great exposure to iron ore production means that Rio's shares usually rise and fall on the price of iron ore. Iron ore was greatly appreciated this year, partly due to supply problems resulting from the collapse of a large dam owned by the Brazilian mining giant Vale in Brazil at the beginning of this year. The price of iron ore has risen from around $ 70 per ton to around $ 120 per ton today. Rio costs about $ 13.30 to extract a ton of iron ore, so this has substantially increased the company's profits and has been largely responsible for the huge stock price increases we've seen so far in 2019.
The commodity companies are highly cyclical, particularly the iron miners, and Rio Tinto is no different: now may not be the best time to open a position. I predict that supply constraints surrounding the price of iron will eventually dissipate and the price will fall from these highs, with the price of Rio's shares behind. If (or when) this event, it might be worth waiting to get some shares at more than one discount.
Meanwhile, we found 5 ASX shares that seem much cheaper than Rio at the moment.
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Motley Fool collaborator Sebastian Bowen has no position in any of the stocks mentioned. Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all have the same opinions, but we are all convinced that, considering a wide range of insights, we have become better investors. The Motley Fool has a disclosure policy. This article contains only general investment recommendations (with AFSL 400691). Authorized by Scott Phillips.
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