Rio Tinto Shines Among Miners – by Rhiannon Hoyle (Wall Street Journal – December 10, 2015)

http://www.wsj.com/

SYDNEY—A little over a year ago, the most pressing issue for Rio Tinto wasn’t whether it could ride out the commodities downturn. Instead, it was whether the mining company could survive without falling prey to a rival such as Glencore PLC.

Rio has since been bruised by steep declines in commodity prices. But it has so far spared its shareholders much of the pain dished out by competitors such as Anglo American PLC and Glencore, which last year approached Rio about a possible takeover.

The Anglo-Australian mining company, which recorded an annual loss as recently as three years ago, now finds itself valued more highly than its chief rivals by investors on several metrics.

While Rio is sticking to plans to maintain or raise its dividend this year, longtime Anglo-Australian rival BHP Billiton is under heavy pressure to cut its payout, a step both Anglo and Glencore have already taken.

Rio’s outperformance has been underpinned by a risky but calculated strategy to keep expanding the vast Australian iron-ore operations it relies on for most of its earnings, even as prices of the commodity began a long slide to their lowest level in a decade.

By doubling down on iron ore, Chief Executive Sam Walsh is betting that Rio’s economies of scale in Australia’s remote Pilbara region—which accounts for three in every five tons of iron ore traded by sea—meant it could still make a healthy profit, while other companies with higher costs struggle.

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