Rio Tinto stock forecast

What do disappointing third quarter results mean for Rio Tinto’s stock forecast?

Exterior of Rio Tinto building                                 
Rio Tinto publishes disappointing Q3 results – Photo: Shutterstock
                                

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Between a collapse in iron ore prices, a tight labour market in Western Australia and a series of global supply chain issues, the mining company has experienced a series of knockbacks this quarter.

Still reeling from reputational damage in the wake of its decision to destroy two Aboriginal rock shelters in 2020 to expand its mining activities in Western Australia, the company is seemingly facing trouble from all sides.

While these results are far from ideal, what does the future entail? What is the latest Rio Tinto stock forecast?

Let’s take a closer look at the results…

Third quarter results for 2021

Iron ore shipments rose by 2% compared to Q3 2020, and 9% compared to the second quarter of 2021, while iron ore production dropped by 4% compared to this time last year.

The mining operator also cut its iron ore output guidance between 320 to 325 million tonnes in 2021, down from an earlier forecast of 325 to 340 million tonnes. This, the firm reported, was due to delays in the completion of the Robe Valley brownfield mine replacement project and the new mine at Gudai-Darri. Equipment shortages, delays due to heritage management issues and a “tight labour market in Western Australia” also factored into depressed output. 

Currently the world’s largest producer of iron ore, the amended forecasts may result in Rio Tinto’s losing its crown to Brazilian competitor, Vale.

Production of bauxite, aluminium, copper and titanium dioxide also dropped compared to this time last year. As a result, the company also downgraded future guidance for copper and bauxite production. 

In the Q3 results, Rio also announced delays in Oyu Tolgoi copper project, forecasting production would not start on the mine until January 2023, due to Covid-19 related issues.

In response to the results, Jakob Stausholm, who was promoted to CEO earlier this year, said: “It has been another difficult quarter operationally and despite improving versus the prior quarter, we recognise the opportunity to raise our performance.”

While this report is far from glowing, what is the Rio Tinto stock forecast for rest of this year and beyond?

Let’s first look at the market response.

Market Response

Rio Tinto share price has experienced substantial volatility over the past year. After a spike in share price in May as a result of iron ore prices rocketing, demand has since been hit, and Rio Tinto’s stock price has fallen in the same direction.

In May, the mining giant’s shares hit highs of $94.65. After demand fell as a result China imposing steel output curbs, the share price has dramatically fallen to lows of $65.37 at the end of September.

On Thursday, the Rio Tinto stock price rallied off the back of the firm’s announcement by that it is developing a new technology that could, in practice, deliver low-carbon steel, to complement its ESG strategies.

Despite this recent upturn to prices of $71.26 yesterday, the Rio Tinto share price dropped nearly 1% this morning off the back of the Q3 results.

In response to the news, a broker from RBC wrote: “Another disappointing quarter for Rio Tinto as the company struggles to regain operational momentum.”

Christopher LaFemina, an analyst at Jeffries, reflected such sentiments, writing: “Not a great quarter for Rio with the collapse in the iron ore price and weaker than expected production in bauxite, aluminium and copper…An operational recovery is needed for these shares to work.”

Future Strategy

While these results suggest there is certainly some work to do, it’s not all pessimistic.

Recent announcements regarding Rio Tinto’s sustainable strategy could create long-term growth for the company. The iron ore miner forecasts the new technology under development, which uses biomass instead of coking coal in the process of making steel, could become a cost-effective and sustainable alternative to the traditional process.

The new technology, which is currently being tested  small-scale on a pilot plant and whose patent is currently pending, if successful, could dramatically alter the carbon footprint of the firm.

Simon Trott, Iron Ore CEO at the mining operator, commented on the new developments: “We are encouraged by early testing results of this new process, which could provide a cost-efficient way to produce low-carbon steel from our Pilbara iron ore… while it’s still early days and there is a lot more research and other work to do, we are keen to explore further development of this technology.”

In the Q3 results, Tinto also reiterated its ESG focus, citing new partnerships with Komatsu, Sumitomo Corporations and Caterpillar, to drive ESG goals and lower emissions.

Given how pertinent a topic sustainability is, these steps could create favourable returns in the future. Successful development in this area would in turn impact a Rio Tinto stock forecast positively.

Expert Opinion

But what are expert’s prediction for a Rio Tinto share price forecast?

Out of 22 analysts polled, the most optimistic of the bunch estimate a 12-month price target of £7,160 ($9,850), an increase of 40.1% compared current price. The low end for Rio Tinto stock comes in at £4,131 ($5,677), a decrease of 19.2%. The median estimate represents a 11% increase from current price to £5,675 ($7,800).

Five FT experts have put a buy recommendation, eight analysts believe Rio Tinto will outperform the market, eight advise a hold, two believe it will underperform the market and one analyst has put a sell rating.

There are a number of reasons, a series of operational issues have led to a decrease in production output. Reputational damage combined with delays relating to one of its major new projects have also led to decreased confidence. Furthermore, China’s curbs on iron ore output earlier this year have led to decreased demand. Despite this, there are some signs that Rio Tinto share price may rebound, especially if its carbon-reducing technologies turn out to be successful. 

While it is difficult to forecast so far in the future, FT analyst forecasts are certainly optimistic.

If the mining giant can iron out operational issues, deliver on its sustainable goals and overcome Covid-19 related chain supply issues, the forecast for 2025 looks favourable. 

While some analysts perceive Rio Tinto to be a good stock to buy, robust growth still rests on a number of unknowns. 

As with any investment, stocks can go up or down so it is important to do your own research. 

You can buy Rio Tinto shares today in tokenised assets at Currency.com. Tokenised assets are crypto derivatives whose value is linked to the value of a particular asset. 

Currency.com offers the opportunity to buy with leverage, with easily defined stop losses, and limits to close positions at a specified price. But while leverage will allow you to make bigger profits if a stock goes up, it will also magnify your losses if the price goes down.

Further reading

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