Rio Tinto’s (ASX: RIO) share price has fallen 17% in one month. Is this a purchase?
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Is the Rio Tinto Limited (ASX: RIO) Is the stock price worth considering after falling 17% in the past month?
It has been a difficult time in recent weeks for companies operating in the iron ore industry such as BHP Group Ltd. (ASX: BHP) and Fortescue Metal Group Limited (ASX: FMG).
The price of iron ore has fallen with the drop in Chinese demand. The Chinese are the main customer for Australian iron ore. Thus, China has a very important role to play in the relation between supply and demand of iron ore.
But Rio Tinto’s dividend also became ex-dividend, meaning new investors after the ex-dividend date are not entitled to the FY21 interim dividend.
Rio Tinto’s big dividends
The mining giant declared an ordinary dividend of $ 3.76 per share for the first six months of FY21, an increase of 143% from the first half of FY20.
But the resource company made so much profit that it also decided to declare a special dividend of US $ 1.85 per share.
This meant that the total dividend per share for the first six months was US $ 5.61, an increase of 262%.
Rio Tinto generated $ 7.52 of underlying earnings per share (EPS) in the first half of FY21, and therefore still retains a portion of that generated profit.
Growth was strong across the board, with Rio Tinto benefiting from improved profitability due to very high commodity prices.
Half-year operating cash flow for fiscal 21 jumped 143% to $ 13.66 billion. Underlying profit increased 156% to US $ 12.17 billion and free cash flow soared 262% to US $ 10.2 billion.
The company’s balance sheet has also improved significantly, from $ 664 million in net debt as of December 31, 2020 to $ 3.14 billion in net cash as of June 30, 2021.
One of Rio Tinto’s main headlines recently is that it has committed $ 2.4 billion in funding for the Jadar lithium borates project in Serbia, subject to obtaining all approvals, permits and licenses. relevant.
It targets first salable production in 2026 and ramps up to full annual production of approximately 58,000 tonnes of battery-grade lithium carbonate by 2029.
Rio Tinto says this positions it as the largest source of lithium supply in Europe. Jadar could supply enough lithium to power more than a million electric vehicles a year.
Is Rio Tinto’s share price a buy?
It depends who you ask.
Broker UBS believes Rio Tinto is actually a sell-off, with a price target of $ 102. He expected the price of iron ore to drop substantially – and it has already come down significantly. UBS believes that a higher supply will lead to an even lower iron ore price in the coming months.
But there are still purchase reviews, such as Macquarie Group Ltd. (ASX: MQG) which has a target price of $ 153 on the Rio Tinto stock price. The resumption of operations at Richards Bay Minerals in South Africa is a positive point for the broker, after a stabilization of the security situation around the mine, supported by the local government.