Thursday 13 February will bring us 2013 full-year results from Rio Tinto (LSE: RIO) (NYSE: RIO.US), and we’ve already seen evidence that a recovery from the mining sector slump could be on the cards after the company released a fourth-quarter production update last month.
We heard of record iron ore shipments of 72.4 million tonnes during the three months, up 8% on the final quarter of the previous year, with year-to-date shipments up 5% to 259 million tonnes. The company also achieved record production of bauxite and thermal coal. Other miners have also given us similarly upbeat updates.
What are the actual financials looking like?
Return to growth
Analysts are expecting a return to earnings growth for the year just ended in December 2013, albeit a modest one of around 3% — but they do have rises of 15% and 10% penciled in for 2014 and 2015 respectively. On the current share price of around the 3,260p level, that suggests a price-to-earnings ratio (P/E) of 10.3 for 2013, compared to a forward average for the FTSE 100 of just under 17.
And if that doesn’t sound cheap enough, those growth forecasts for the next two years would drop the P/E to 9 and then just 8.2 — if the share price remains the same.
That seemed like too much of a bargain to me, so I topped up the Fool’s Beginners Portfolio with some more Rio Tinto shares last week.
Cost-cutting
As well as telling us how much valuable dirt it has dug up, Rio Tinto also said it has exceeded its cost-cutting targets for the year and has completed or announced sales of non-core assets to the value of $3.5bn. And that lends credence to that impressive transformation of muck into brass expected by the City in the coming years.
That all comes on top of an impressive third-quarter, which saw copper production climbing strongly.
But what about those all-important dividends?
Show us the cash
At the first-half stage, Rio Tinto upped its interim dividend by 15% to 83.5 cents per share. There’s a total payment predicted for the year of about 179 cents (110p), which would provide a yield of 3.4% — and if the combination of cost-cutting and rising production continues to have the desired effect, we could see that rise to around 3.9% by 2015.
That’s not the highest dividend yield around, but it is ahead of the FTSE average of 3.2%. And if we get the hoped-for share price recovery over the course of 2014 — Rio shares are currently down 10% over the past 12 months — we could be seeing an attractive investment package in Rio Tinto.
Definitely worth keeping our eyes open for!
