Miner Rio Tinto plc (RIO) through its wholly-owned subsidiary, Rio Tinto International Holdings Limited, acquired additional 3.7 million shares in Ivanhoe Mines Ltd. The stake purchase has increased Rio Tinto’s ownership in Ivanhoe Mines by 0.5% to 49%, being equivalent to roughly 361.9 million shares of the latter.
The transaction was done according to a privately negotiated share purchase agreement between the two parties. Shares were acquired for an aggregate price of C$73.1 million, or C$19.75 per share.
We believe the company’s expansion as well as divestiture programs are conducive to maintaining a balanced financial position, going forward. Rise in demand worldwide for iron ore in the emerging nations along with the escalation in price of metals and minerals strengthen our outlook on the stock.
The global demand for the company’s key products such as iron ore, copper, and aluminum are expected to double in 15 to 20 years, primarily driven by China, India, and other rising economies based on their policies of industrialization and urbanization.
The company is experiencing solid order flows and is making every effort to tap the soaring demand for its products. The company has over $27 billion major capital projects progressing and roughly $35 billion projects in the advanced-study phase.
In addition, recently Rio Tinto raised funds by issuing roughly US$2 billion SEC-registered fixed rate bonds. The issue included US$500 million of five-year, US$1.15 billion of 10-year and US$350 million of 30-year bonds carrying coupon rates of 2.25%, 3.75%, and 5.20%, respectively.
However, strong resource competition, scarcity of new discoveries, rise in raw material prices, currency fluctuations and natural calamities pose serious operational threats. The company competes against global mining giants like BHP Billiton Ltd. (BHP) and Vale S.A (VALE).
The current Zacks Consensus Estimates for the fiscal years 2011 and 2012 are $8.76 and $9.55, representing year-over-year growth of 21.21% and 9.0%, respectively.
Headquartered in London, UK, Rio Tinto is engaged in exploring, mining and processing of the earth’s mineral resources, producing a broad range of metals and minerals. We currently maintain a Neutral recommendation on the stock.
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