Rio Tinto RIO reported iron ore shipments (on a 100% basis) of 86.5 million tons (Mt) for the fourth quarter of 2024, which declined 1% year over year. This takes RIO’s yearly total to 328 Mt, down 1% year over year, but within its guidance of 323-338 Mt.
The company’s shipments also declined 1% year over year to 328.6 Mt in 2024. Production was affected by depletion, predominantly at Paraburdoo as the company is transitioning to Western Range and Yandicoogina, as well as higher-than-average rainfall.
RIO’s peer Vale S.A VALE expects iron ore production of 328 Mt for 2024, which indicates year-over-year growth of 2%.
Other Key Highlights From RIO’s Production Report
Bauxite production rose 2% year over year to 15.4 Mt in the fourth quarter. Production for the full year was 58.7 MT, up 7% year over year, higher than the company’s expectation of 53-56 Mt. The increase was attributed to the implementation of the Safe Production System, and record annual production at Amrun and Gove.
Rio Tinto’s aluminum output was down 1% year over year to 837 kt. However, for 2024, aluminum production rose 1% year over year to 3.3 million tons, within the company’s guided 3.2-3.4 Mt. The ramp-up of Kitimat and completion of cell recovery efforts at Boyne in the prior year, together with increased ownership of Boyne and New Zealand Aluminium Smelter (“NZAS”) drove the improvement. These were partially offset by the continued closure program at Arvida and a request to reduce energy use at NZAS.
In the fourth quarter, copper production was 202 thousand tons, 26% higher than the year-ago quarter. Copper produced in 2024 was 697 thousand tons, marking a 13% year-over-year increase. The improvement was driven by the ramp-up of Oyu Tolgoi underground and increased production from Escondida due to higher grades fed to the concentrator. This helped offset lower output at Kennecott geotechnical instabilities in the pit wall that impacted the mining sequence and increased the use of lower-grade stockpiled ore. Due to this reason, Rio Tinto guided 2024 copper production near the lower end of the earlier stated 660-720 kt.
Rio Tinto’s Production Guidance for 2025
Rio Tinto expects Pilbara iron ore shipments (100% basis) to be 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 at 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 and 7.8 Mt, suggesting growth from the reported output of 7.3 Mt in 2023. Aluminum production is expected to be 3.25-3.45 Mt, whereas it produced 3.3 Mt in 2024.
Rio Tinto expects copper production 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 Earnings Decline to Continue in 2024 & 2025
RIO reported a 10% decline in average realized iron ore prices in 2024. However, copper and aluminum rose 4% and 8%, respectively. Gains from higher copper output and prices will be offset by the impacts of lower iron ore shipments and prices in the year.
The company earlier expected Pilbara Iron ore unit costs to be in the upper half of $21.75-$23.50 per ton for 2024, suggesting a rise from the $21.50 per ton reported in 2023. This reflects inflation in the costs of labor and parts in Western Australia. However, copper unit costs are expected at $1.40-$1.60 per pound due to higher volumes at Oyu Tolgoi, whereas it reported $1.95 in 2023.
The Zacks Consensus Estimate for RIO’s 2024 revenues is pegged at $51.2 billion, suggesting a 5% year-over-year dip, whereas the same for earnings indicates a 7% drop to $6.77 per share. The estimate for revenues for 2025 suggests a 2% increase but the same earnings projects a 6% decline.
Notably, Rio Tinto’s earnings in 2023 fell below the 5-year average. The projected figures for 2024 and 2025 indicate a continuation of this trend, raising concerns.
Rio Tinto Witnesses Downward Earnings Estimate Revisions
The Zacks Consensus Estimate for Rio’s earnings for 2024 and 2025 have undergone negative revisions as shown in the charts below.
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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
RIO Stock Outperforms Industry But Lags Sector
Shares of Rio Tinto have lost 11.5% over a year compared with the industry's 12.8% drop. The Basic Materials sector has declined 1.8%, while the S&P 500 has risen 26.7% in the same timeframe.
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Price Volatility Concerns Rio Tinto
Iron Ore prices have declined 27% in a year due to the weak demand in China amid the prolonged property crisis. However, prices have regained ground lately to $100 per ton amid market optimism about potential stimulus measures from China. Also, per recent data, China imported a record high of 1.24 billion tons of iron ore last year. Steel shipments from China in 2024 were also at the highest level since 2015. However, the threat of imposition of tariffs could weigh on the market by disrupting China exports. The pickup in iron ore prices might lose steam.
Copper prices have gained 17% in a year. Prices have moved up lately, driven by increasing bets on further interest rate cuts from the Federal Reserve this year and China’s stimulus measures. However, the potential of new tariffs could impact this momentum.
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. It 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 of investing $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. While lithium prices have been impacted by the glut in supply, it will recover, given its key role in the global transition to clean energy.
Valuation Looks Attractive for Rio Tinto
Rio Tinto trades at a forward price-to-earnings multiple of 9.45, lower than the industry's 12.44. The company is also trading at a discount compared with BHP Group BHP and FreeportMcMoRan FCX, which are trading at 11.49 and 20.90, respectively.
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How Should Investors Play the 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 now.
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