Rio Tinto share price dips despite copper mega-mine milestone

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.

The Rio Tinto Ltd (ASX: RIO) share price is down 0.9% today to $117.44 as the company prepares to launch production at its enormously expanded Mongolian copper mine.

It appears that the Rio Tinto share price is falling along with the S&P/ASX 200 Index (ASX: XJO).

ASX 200 shares are having a shocker all around today. The index is down 2% at the time of writing, with every one of the 11 market sectors in the red.

Rio Tinto share price down amid copper mine launch

According to reporting in The Australian, Rio Tinto CEO Jakob Stausholm is in Mongolia for the official commencement of production from the new underground section of the Oyu Tolgoi copper mine.

According to Stausholm, the mine is “on track to be the fourth-largest copper mine in the world”.

The Oyu Tolgoi copper mine already produces 130,000 tonnes of copper annually from its open pit.

But when you add in the richer production expected from the underground section, Rio reckons average annual output will rise to 500,000 tonnes from 2028 to 2036.

Production will then slow to an average of 350,000 tonnes of copper per year for a further five years.

It hasn’t been a smooth road to this point due to friction between Rio Tinto and the Mongolian Government, which owns 33% of the project.

At one point, the parties reached an impasse over investment and revenue sharing that resulted in a near two-year delay in construction.

When Stausholm took over as CEO in January 2021, he made it a personal mission to get Oyu Tolgoi sorted.

Things appear to be going swimmingly now.

The Mongolian Prime Minister Oyun-Erdene Luvsannamsrai is with Stausholm at the site for the launch.

What’s the significance of Oyu Tolgoi?

For Mongolia, the significance is huge. According to the article, the mine will eventually deliver as much as half of the country’s total gross domestic production (GDP).

For Rio Tinto, the mine will do a couple of big things for the company.

Firstly, it will diversify its earnings a bit more.

Rio has four key mining segments — iron ore, aluminium, copper, and other minerals.

In 2022, copper contributed US$2.376 billion in underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA). This represented 8.8% of total EBITDA, making copper the smallest contributing segment overall.

Iron ore was the largest, contributing US$18.612 billion in EBITDA or 69% of the earnings pie.

To put Oyu Tolgoi into perspective, at peak capacity, Rio’s share of production will equate to 330,000 tonnes (66% ownership).

That represents a huge increase in copper production overall for the company. In 2022, Rio achieved total mined copper production of 521,000 tonnes and refined copper production of 209,200 tonnes.

Secondly, Oyu Tolgoi will enhance Rio’s ability to capture the rising demand for minerals critical to the global energy transition.

Copper is used in electric vehicles and wind turbines.

In Rio’s 2022 Strategic Report released to the ASX on 23 February, Stausholm said:

We expect the energy transition will add as much as 25% in additional demand above traditional sources across our key products by 2035.

That is why our strategy is about growing in the materials required to achieve the energy transition, such as copper, lithium and high-quality iron ore.

A highlight this year was resetting our relationship with the Mongolian Government and successfully executing our first significant M&A in a decade through our acquisition of Turquoise Hill Resources Ltd. This doubled our interest in Oyu Tolgoi to 66% …

The location of the mine in the Gobi Desert is about 100km north of the Chinese border. That’s pretty convenient considering China consumes almost half of the world’s copper output.

Broker Goldman Sachs is backing the Rio Tinto share price for significant growth over the next year.

It has a conviction buy rating on the mining share and has upped its price target on Rio to $140.40.

The post Rio Tinto share price dips despite copper mega-mine milestone appeared first on The Motley Fool Australia.

FREE Beginners Investing Guide

Despite what some people may say – we believe investing in shares doesn’t have to be overwhelming or complicated…

For over a decade, we’ve been helping everyday Aussies get started on their journey.

And to help even more people cut through some of the confusion “experts’” seem to want to perpetuate – we’ve created a brand-new “how to” guide.

Yes, Claim my FREE copy!
*Returns as of March 1 2023

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];[property] = defaultValue;

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);

More reading

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s