Shares of Rio Tinto RIO have lost 3% since it reported fiscal 2024 results on Feb. 19. The company reported a 1% decline in total revenues, a 2% drop in underlying EBITDA and an 8% decline in underlying earnings per share. The decline was attributed to lower iron ore prices, which were partly offset by higher prices for bauxite, copper and aluminum.
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RIO stock moved below its 200-day simple moving average (SMA) on Feb. 21, indicating a potential short-term bullish trend.
RIO Shares Trade Below 200-Day SMA
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The dip in RIO shares has made investors consider whether to increase their stake or hold on to their current investments. Let us delve deeper into its recently reported results and evaluate the stock’s fundamentals.
Low Iron Ore Prices Drag RIO’s FY24 Results
Rio Tinto witnessed a 1% decline in fiscal 2024 total revenues to $53.7 billion, mainly attributed to lower iron ore revenues that negated the improved performances in aluminum and copper.
The company reported iron ore production of 328 Mt for 2024, down 1% year over year. Shipments declined 1% year over year to 328.6 Mt. Lower shipments and a 10% drop in iron ore prices resulted in a 9% decline in the iron ore segment’s revenues to $29.3 billion.
Aluminum production rose 1% year over year to 3.3 MT and prices were up 4%. The aluminum segment reported revenues of $13.7 billion, an 11% increase year over year.
The copper segment’s revenues were $9.3 billion, up 39% year over year. This was aided by an 8% increase in copper prices and a 13% increase in copper production to 697 thousand tons.
Rio Tinto’s underlying EBITDA was down 2% to $23.3 billion and underlying earnings per share were down 8% to $6.70.
The impact of the iron ore price decline was somewhat offset by higher prices for copper, bauxite and aluminium along with higher copper and bauxite volumes, as well as RIO’s focus on cost discipline. Also, Pilbara unit costs of $23.0 per ton were $1.5 per ton higher than in 2023, driven by lower iron ore production and inflation.
Rio Tinto’s Production Guidance for 2025
Rio Tinto expects Pilbara iron ore shipments (100% basis) to be in the band of 323-338 Mt. The range indicates a year-over-year decline of 2% to growth of 3%. SP10 levels, which include other lower-grade products, are expected to be elevated until replacement projects are delivered. Also, Pilbara iron ore guidance remains subject to the timing of approvals for planned mining areas and heritage clearances.
Bauxite production is expected in the band of 57-59 Mt compared with 58.7 Mt in 2024. RIO cautioned that the iron ore shipments and bauxite production guidance remain subject to weather conditions. Alumina production is anticipated between 7.4 Mt and 7.8 Mt, suggesting growth from the reported output of 7.3 Mt in 2024. Aluminum production is expected to be in the band of 3.25-3.45 Mt compared with 3.3 Mt in 2024.
Rio Tinto expects copper production in the range of 780-850 kt for 2025. The company reported total copper production (mined and refined) of 792.6 kt in 2024. It has revised the Kennecott mine plan and anticipates production to be impacted in 2025 and 2026, with slight improvement expected in 2026.
RIO’s Downward Earnings Trend is Concerning
The Zacks Consensus Estimate for Rio Tinto’s earnings for 2025 and 2026 have undergone negative revisions as shown in the charts below.
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Image Source: Zacks Investment Research
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The consensus estimate for RIO’s 2025 revenues is pegged at $52 billion, indicating a 3.7% year-over-year dip, whereas the same for earnings indicates a 6.3% drop to $6.28 per share. The estimate for revenues for 2026 indicates a 1.6% increase while the estimate for earnings implies a 0.7% decline.
Rio Tinto’s earnings have been declining since 2022. Notably, the company’s earnings in 2024 were below the five-year average. The projected figures for 2025 and 2026 indicate a continuation of this trend, raising concerns.
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RIO Stock Outperforms Industry but Lags Sector
Shares of Rio Tinto have lost 4% over a year compared with the industry's 5.9% drop. The Basic Materials sector has declined 0.1%,while the S&P 500 has risen 19.1% in the same timeframe.
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Price Volatility Concerns Rio Tinto
Iron ore prices have declined 10% in a year due to the weak demand in China amid the prolonged property crisis. However, prices have regained ground lately to $107 per ton amid market optimism that demand in China will gain traction this year. It is expected that the housing crisis will slow after the decline in prices bottomed last year and softened to a six-month low in February.
Copper prices have held their ground, buoyed by demand in the energy transition trend. However, the gains were negated somewhat by weak demand in China and the prolonged contraction in the manufacturing sector. Copper prices gained recently as U.S. President Donald Trump ordered an investigation into potential tariffs on copper imports.
RIO Stock’s Long-Term Story Intact
RIO has a robust portfolio of projects with activity in 18 countries across eight commodities in the early exploration and studies stages. Simandou (iron ore) and Oyu Tolgoi (copper) are the primary growth projects. The company continues to earmark $10 billion for capital expenditure per year. This includes $7 billion to be spent on existing projects, high-returning replacement projects and decarbonization efforts. Growth capex is estimated at up to $3 billion per year.
Rio Tinto is working on building its lithium portfolio to capitalize on the rising demand for batteries and electric vehicles. The proposed acquisition of Arcadium Lithium is expected to close in mid-2025. The company recently announced its plan to invest $2.5 billion in expanding the Rincon lithium project in Argentina. Annual capacity is projected at 60,000 tons of battery-grade lithium carbonate, with a mine life spanning four decades.
Despite the ongoing weakness, iron ore prices will eventually gain as urbanization drives demand for steel. Copper prices will be supported by demand in the electric vehicle market and renewable energy investments. Although lithium prices have been impacted by the glut in supply, they will recover given their key role in the global transition to clean energy.
Valuation Looks Attractive for Rio Tinto
Rio Tinto is trading at a forward price-to-earnings multiple of 9.90, lower than the industry's 13.26. The company is also trading at a discount compared with BHP Group BHP, FreeportMcMoRan FCX and Southern Copper Corporation SCCO, which are trading at 12.31, 20.97 and 20.02, respectively.
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How Should Investors Play RIO Stock?
Rio Tinto’s robust portfolio of growth projects, acquisition strategy and solid financial health bode well for long-term growth. However, considering RIO’s declining earnings, downward revisions and volatile iron ore prices, it is advisable to steer clear of this Zacks Rank #5 (Strong Sell) stock for now.
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