Premium basic materials company Rio Tinto plc RIO reported strong operational results for second-quarter 2015, supported by greater efficiency in all business processes. Despite an unfavorable pricing environment, the company aims to expand its margins and increase shareholders’ value in the near future with the help of a low-cost management system and highly productive asset base. Barring mined copper, semi-soft & thermal coal and titanium dioxide slag, quarterly volumes of almost all products exceeded the respective year-ago tallies.

For second-quarter fiscal 2015, Rio Tinto’s iron ore production totaled 79.7 million tons, up 9% from the year-ago tally. Despite unfavorable weather conditions, the improvement was primarily driven by programs which focused on expanding infrastructure and enhancing operational efficiency.  

At quarter-end, gross output of hard coking coal was 2,101 kilo tons, up 15% year over year. The improvement was attributable to increased productivity of the Kestrel mine.  

However, at second-quarter end, the company’s aggregate mined copper output decreased 19% year over year to 134 kilotons. According to the company, de-watering and de-weighting activities conducted in the earstern wall of its Bingham Canyon were mainly responsible for the weak productivity.  

Rio Tinto’s gross titanium dioxide slag at the quarter-end was 301 kilotons, up 19% from the value recorded in second-quarter fiscal 2014. Management stated the output was purposely lowered to match pace with market demand.

Outlook for 2015

Considering the impact of climatic turmoil in Western Australia, Rio Tinto has trimmed its full-year guidance for iron ore shipments. It now expects to ship around 340 million tons of iron ore from its Canadian and Australian operational facilities during 2015, down 10 million tons from its previous forecasts. Volumes of hard coking coal are expected within 7.1–8.1 million tons. Taking into account the adverse impact from de-watering and de-weighting activities , Rio Tinto projects mined copper output in a range of 500–535 thousand tons at fiscal 2015-end.

Though the company remains optimistic about its operational performance in 2015, it also recognizes the looming threat of sudden headwinds like decline in product price or inimical weather, going ahead.  

Zacks Rank

Rio Tinto currently carries a Zacks Rank #5 (Strong Sell). We believe declining prices of iron ore continues to hurt the company’s commercial affairs. Moreover, stiff business rivalry leads to price-cutting programs, which ultimately weighs on the company’s quarterly revenues.

Better-ranked stocks in the industry include Mountain Province Diamonds Inc. MDM, Platinum Group Metals Ltd. PLG and Solitario Exploration & Royalty Corp. XPL. All three stocks hold a Zacks Rank #2 (Buy).

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