Rio Tinto (RIO) Growth Prospects Bright Despite Macro Headwinds

On Aug 22, 2016, we issued an updated research report on premium basic materials company – Rio Tinto (LON:RIO) plc (NYSE:RIO) . Being one of the largest diversified resource firms in the world, this company locates, mines and processes various types of mineral resources across several continents. However, despite its successful global operations, Rio Tinto currently of the Silvergrass mine, Nammuldi Incremental Tonnes project and expansion faces threats from various external headwinds.

Bullish Factors

Increasing extent of global industrialization has been enhancing demand for industrial raw materials in the market. Moreover, Rio Tinto is trying to reinforce its business on the back of new solutions provided via big data analytics solutions.

Also, completion of major projects such as development of Kitimat smelter would boost the company’s productivity over time. In order to invest in new organic and inorganic growth projects, Rio Tinto is strategically improving its liquidity over time. The company is preserving greater cash by lowering capital expenditure, introducing cost-reduction plans and releasing greater amount of working capital in business.

At the same time, it aims to fortify its balance sheet with reduction in net debt. Rinto Tinto has implemented a new flexible dividend policy since Feb 2016. The company percives that this policy would assist in maximising shareholders’ value over time.

Looming Concerns

We believe this Zacks Rank #2 (Buy) stock would continue to grow its business over the long run. However, certain industry-specific headwinds might hurt Rio Tintos’ commercial prospects. For instance, reduced investments of companies belonging to the manufacturing and industrial sectors are hampering the demand for core metals and, hence, hurting sales of mining companies like Rio Tinto. Extensive business rivalry existing in the mining industry exposes the company to risks of market-share loss.

Other Stocks to Consider

Rio Tinto currently carries a Zacks Rank #2 (Buy). Some other stocks within the industry include Klondex Mines Ltd. (NYSE:KLDX) , McEwen Mining Inc. (TO:MUX) and Uranium Resources, Inc. (NASDAQ:URRE) . All these three stocks carry the same Zacks Rank as Rio Tinto.

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