Mining for raw materials is extremely complex and operational problems are common. This has been the case with Rio Tinto (LSE:RIO) more recently, and its share price has sunk on disappointing production news for the last quarter.
At £49.98 per share, the FTSE 100 miner was last dealing 3.7% lower on Tuesday (16 July).
This latest fall means Rio Tinto shares have fallen more than 10% in just six weeks. As a long-term investor, I think this could represent an attractive dip-buying opportunity. Here’s why.
Triple trouble
In today’s quarterly update, Rio Tinto delivered a triple whammy to investors. Firstly, the world’s biggest iron ore miner said that production of the ferrous metal dropped 2% in the second quarter, to 79.5m tonnes.
For the first half, output was down by the same percentage, at 157.4m tonnes.
Production missed City forecasts because of a train collision at Rio’s Pilbara operations in Australia. The incident in mid-May resulted in “around six days of lost rail capacity and full stockpiles at some mines“, the company said.
On top of this, Rio said that total copper production for 2023 would likely be at the lower end of its 660,000 to 720,000 tonnes guidance. This reflects conveyor belt problems at its Kennecott mine in the US and changes to its mine plan.
Finally, Rio warned that alumina output for this year would be 7m to 7.3m tonnes, down from a previous forecast of 7.6m to 7.9m tonnes. This is due to gas supply problems at its Gladstone asset Down Under.
Staying bullish
I own Rio Tinto shares myself, and so today’s news is disappointing to me personally. However, I knew that such risks are part and parcel of owning mining stocks.
My opinion was that the potential benefits of owning the Footsie company offset these dangers. And it’s a view I continue to hold despite its recent troubles.
This is because Rio Tinto has an exceptional chance to grow profits over the next decade. Factors like the rapid expansion of renewable energy, increasing sales of electric vehicles (EVs), booming AI adoption, and ongoing urbanisation will all drive demand for base metals and iron ore sharply higher.
Mega miners like this have the scale to make the most of this opportunity, too, through new projects and expansions to existing assets.
Indeed, in brighter news on Tuesday, Rio Tinto also said it had received all approvals to build the Simandou iron ore project in Guinea. First production from the asset — which the company says contains a mammoth 2bn tonnes of the steelmaking ingredient — is expected in 2025.
Too cheap to ignore
It’s also my opinion that the risks of owning mining shares are baked into these companies’ often-low valuations.
Following today’s share price decline, Rio Tinto now trades on a forward price-to-earnings (P/E) ratio of just 8.6 times.
All things considered, I think the FTSE firm is a great stock for long-term investors to consider.
