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Rio Tinto (ASX:RIO) Reports Higher Volume – Is It A Buy?

Rio Tinto Limited (ASX: RIO) has reported its fourth quarter production results for December 2018.

Rio Tinto’s origins date back more than 145 years, but today it is one of world’s largest aluminium and iron ore producers, with much of its sales revenue coming from its operates in Western Australia. It also owns, fully or partly, mining projects for copper, diamonds, uranium and other minerals.

Rio Tinto Production Results

In 2018 Rio Tinto’s Pilbara iron ore shipments of 338 million tonnes were 2% higher than 2017. Its fourth quarter shipments for 2018 of 87.4 million tonnes were down 3% compared to 2017’s fourth quarter.

Bauxite production of 50.4 million tonnes in 2018 was 1% lower than 2017. Aluminium production of 3.5 million tonnes was 3% lower than the prior year primarily due to ongoing labour disruptions at the non-managed Becancour smelter in Canada.

Mined copper production of 634,000 tonnes was 33% higher than 2017 and above the guidance because of a strong performance at Escondida and increased production from Rio Tinto Kennecott due to higher grades. The final quarter showed mined copper up 20% compared to 2017’s last quarter and up 11% compared to the third quarter of 2018.

Other major milestones in the quarter included the first bauxite shipment from Amrun, which was achieved six weeks ahead of schedule, and the signing of the Power Source Framework Agreement between Oyu Tolgoi and the Government of Mongolia.

Sale proceeds in 2018

During 2018, Rio Tinto generated disposal proceeds of approximately $8.6 billion, pre-tax.

This includes $3.5 billion from the sale of the interest in the Grasberg Mine in Indonesia, the sale of the aluminium smelter in Dunkerque (France) for $0.4 billion, the sale of the wharf and land in Kitimat (British Columbia) for $0.6 billion and the sale of coking coal assets for $4.1 billion.

Rio Tinto has also entered into a binding agreement to sell its 68.62% stake in Rossing Uranium, which is expected to complete within the next five months.

The mining business used a lot of the above funds to carry out a $5.4 billion share-buyback during 2018.

Rio Tinto CEO J-S Jacques said:

With a firm ‘value over volume’ focus and disciplined allocation of capital, we will continue to progress our strategic objectives and to deliver superior returns to shareholders in the short, medium and long term.

2019 guidance

Rio Tinto’s Pilbara shipments in 2019 are expected to be between 338 million tonnes to 350 million tones, subject to weather and market conditions. This suggests growth will be, at worst, flat and at best up to 3.5%.

Are Rio Tinto shares a buy?

Rio Tinto has doubled the value of its share price since the beginning of 2016, which is good for how large of a business it is.

It has rewarded shareholders with a pleasing share buyback and its fully franked dividend yield of 5% seems attractive if it can be maintained.

The dividend in 2018 was nearly $4 per share, compared to $3.01 in 2017 and $2.11 in 2016. I imagine it would just take resource prices to be maintained for another dividend increase this year.

Rio Tinto could be a decent buy today, however I prefer to go for businesses that have control of the prices they charge for their products. That’s why I’m interested in the shares mentioned in the free report below.

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