RE: Upturn9 Nov 2022 09:35
However, aluminum is a different story than copper or nickel, which is already banned by the LME.
Russia contributes around 8% of global aluminum supply, and also exports lots of its precursor materials, bauxite and alumina. In the past, Russia had supplied up to three-quarters of LME aluminum warehouse stocks, so a full ban on its metals would certainly cut the metal available on the exchange.
Of course, the LME is hoping the White House acts, taking the decision out of its hands. But whichever entity takes action first, it will be good news for one company whose CEO recently said Russian aluminum should be banned.
Rio Tinto
That company is Rio Tinto Group (RIO), which is the only major mining company in the world that has a significant aluminum division. In fact, aluminum was its second-highest earner in terms of underlying cash profits in the first half of 2022, only behind iron ore and ahead of copper. A ban on Russian aluminum would boost Rio Tinto even further, thanks to its major aluminum operations in Canada. (The company bought Canada’s aluminum giant Alcan back in 2007.)
Of course, there is a lot more to Rio Tinto than aluminum. I like the fact that the company is also investing with a focus on the longer-term. On October 11, Rio Tinto announced that it will modernize its Sorel-Tracy site in Quebec to bolster the supply of minerals controlled by China, while reducing emissions at the site by introducing a new smeltering technology.
The company will start producing titanium metal and quadruple its scandium oxide output to 12 tons annually at the site. These materials are essential to aerospace, medical products, and fuel cells. Currently, China produces three-quarters of finished titanium products and 61% of scandium globally.
In addition, Rio Tinto has bid to take full ownership of Canadian miner Turquoise Hill (TRQ) for $3.3 billion, which would give it greater control over the vast Oyu Tolgoi copper mine in Mongolia. Turquoise Hill holds 66% of the Oyu Tolgoi project, one of the world’s largest known copper and gold deposits, located in the Gobi desert. The Mongolian government owns the remaining stake.
And don’t forget that Rio Tinto has a large portfolio of long-lived assets with low operating costs, meaning it is one of few miners that will remain profitable through the commodity cycle. Plus, most of its revenues come from operations located in the relatively safe havens of Australia and North America.
Rio Tinto’s balance sheet is sound, and I expect the company to run a relatively conservative balance sheet for the foreseeable future. I love the management’s focus over recent years on returning excess cash to its shareholders. In July, Rio Tinto management said it would pay a semi-annual dividend of $4.3 billion ($2.67 per ADR), or 50% of underlying earnings. That was the second-highest half-year payout on record, in line with the company’s dividend policy.
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