Rio Share Price Up on Sombre Results and Rio’s Gold ‘Epicentre’ Pivot

Rio Share Price Up on Sombre Results and Rio’s Gold ‘Epicentre’ Pivot

The share price of Rio Tinto Ltd [ASX:RIO] has risen today despite some sombre earnings results.

Though the broader market is also higher this morning, investors may have been expecting worse news given the impact of COVID-19.

At time of writing, shares in RIO are up 64 cents or 0.62% to trade at 104.04 per share.

Despite the lacklustre results, the RIO share price has returned nicely from their 52-week low of $72.77.

Shares are up 5.20% in the past 12 months.

ASX RIO Share Price Chart - Rio Tinto Share Price

Source: Tradingview

No surprises here

RIO’s first half financial performance will probably surprise very few.

Given the challenging environment and volatile commodity prices, some investors may be happy with the performance.

The $5.6 billion operating cash flow was 12% lower than 2019 first half, mainly due to lower prices.

And the $2.8 billion free cash flow was 28% lower than 2019 first half.

RIO said this reflected the lower operating cash flow and a 13% rise in capital expenditure.

Underlying EBITDA was 6% lower at $9.6 billion.

This was primarily due to poor copper and aluminium prices, but was buoyed by stable iron prices.

Underlying earnings were 4% lower to $4.8 billion, bringing net earnings to $3.3 billion, marking a 20% decrease from first half 2019.

RIO said this mainly reflected $1.0 billion of impairments of four aluminium smelters and the Diavik diamond mine.

Despite the sombre results, RIO will pay a $2.5 billion interim ordinary dividend.

The dividend is equivalent to 155 US cents per share, a 3% increase to 2019 first half.

However, this is at the expense of their balance sheet, which added $1.2 billion in debt, with net debt coming to $4.8 billion.

Though there are plenty more details to unpack in their results, the most interesting news from RIO came out on Tuesday.

The mining giant said they are pivoting into a gold miner.

RIO’s move into gold potentially carries big knock-on effects for other Aussie gold stocks.

Some gold experts are predicting a big spike in Aussie gold stock prices as Australia becomes a new gold hub.

Rio helps cement Australia as gold epicentre

The metals giant announced Tuesday it would accelerate its foray into gold mining.

Able to capitalise on its already massive land holdings in WA, the sharp rise in the gold price now appears too tantalising for the mining giant.

RIO revealed its maiden inferred mineral resource at its Winu copper-gold project Tuesday.

The miner reported a resource at a 0.2% copper equivalent cut-off, of 503Mt at 0.45% copper equivalent.

This includes a higher-grade component of 188Mt at 0.68%.

Though the focus at Winu is the copper component, it appears RIO were also prospecting directly for gold.

RIO often produces gold as part of its mining operations, but it is not considered their focus.

Rio mined 389,700 ounces of gold last year as part of its copper-focused operations.

However, RIO has announced the discovery of a new zone of gold-dominant mineralisation approximately 2km east of Winu.

The company said the encouraging drilling results provides further backing about the potential for the development of the area.

The drilling results highlight the potential of the find:

  • 23m at 4.53 grams of gold per tonne (g/t) from 120m, including 0.75m at 97.1 g/t from 129m.
  • 88m at 33.3 g/t, from 163m.
  • 25m at 4.87 g/t, from 349m, including 1m at 83.5 g/t from 352m.

The Winu deposit is in the Paterson Province of Western Australia.

The project is only 120km from Newcrest’s Telfer mine.

A mine which boasted 32Moz of gold and 1Mt of copper before mining began.

Though there is no estimation of the gold mineralisation of the project yet, a mining giant like RIO leaping into gold mining says a lot about the potential in Australia.

With the gold price hitting fresh highs and being tipped to make it to US$2,000 by the end of the year, how many other mining giants might board the gold train?

Just take a look at the graph below.

Australia Mining and Exploration Expenditure Chart

Source: ABS

It shows the amount of cash spent on the mineral exploration since 1988.

There is a pretty strong pattern emerging.

Now, there are a host of factors that play into the trend we are currently seeing.

Too many to discuss in detail here.

The obvious one being the rise in gold price.

But the important thing to note is that when a diversified mining giant makes a play for gold, you pay attention.

RIO wants to have Winu in production by 2023 to lay a foundation to flesh out the potential of the Paterson region.

While Winu will largely be copper focused (a nod to the price of copper), Rio said it is more than happy to build gold mines.

REVEALED: What’s Next for Aussie Gold Stock Prices? Learn more.

My point here is this:

For a company that would typically sell off its gold prospects to then say it’s now willing to development them is a big deal.

Rio chief executive, Jean-Sebastien Jacques, said back in February:

If today our exploration teams find a good gold deposit, I think we may keep it in the portfolio. We believe in diversification and gold could be part of it.’

This was when the gold price was moving around the US$1,600 mark.

Now that the price is close to US$2,000, RIO could be envisaging an even higher price by the time Winu comes online.

Whether or not this will have much of an impact on the RIO share price remains to be seen. As a diversified miner, I don’t believe it will have huge impact.

RIO’s pivot into gold is a big deal is because it helps cement Australia as an emerging gold epicentre.

With the price of gold continuing upwards, we’re seeing more and more miners investing in gold exploration in Australia. That’s why our resident gold expert Shae Russell has tipped Australia to become the next ‘gold epicentre’. The implication of this could mean big spikes in Aussie gold stock prices. If you want to learn more, download your free report here.

Kind regards,

Lachlann Tierney
The Daily Reckoning