Copper Panorama to Rule RIO Future - Analyst Blog

Copper investments in Asia look attractive and given the pros and cons, Rio Tinto Plc . ( RIO ) stands to cash in on the opportunities.

Copper: Mongolian Growth & Chinese Demand

The Mongolian Government predicts an economic boom, spurred by the Oyu Tolgoi copper-gold mine that produces gold, silver and copper worth over $3 billion per year. Meanwhile, in the last decade (2000-2010), the demand for copper was mostly driven by China. The issue therefore, begs the question whether indeed China is the sole demand driver for Mongolian copper.

Indeed, a huge support for Mongolia's growth rests upon its own wealth of natural resources coupled with its proximity to the Chinese market, and this is evident from the 12th Five-year plan for National Economic and Social Development of China.

The report indicated that China is expected to increase its current annual copper consumption from 5.4 kg per capita to a massive 10kg per capita in the future, based on the development projects. Hence, the copper industry will play a large role in Chinese growth.

Rio's Oyu Tolgoi Venture

The Mongolian government's joint venture with Ivanhoe ( IVN ) and Rio Tinto Plc ( RIO ) has targeted the Oyu Tolgoi copper-gold mine in Mongolia to commence production in the second half of 2012. The analysts find more prospective resources to be explored and developed in the area, which is geographically positioned within the larger copper belt of the country.

Research Predicts Huge Surge in Copper Demand

The August issue of the metal research reports in US anticipated world demand for copper - used in power and construction - to reach 20.3 million tons in 2011, helped by stronger-than-anticipated growth in Europe and the United States. The report predicts a divergence between Chinese copper demand and production. It also expects a declining trend in copper production in the coming decade despite new copper mines emerging.

RioTinto and Chinalco JV

With this backdrop, Chinalco Rio Tinto Exploration Co. Ltd ( CRTX ), the joint venture between Rio Tinto and Chinalco, received a nod from China's Industrial and Commercial Administration. Both the parties inked the official JV exploration agreement in June 2011, which was recently registered in China for exploration of the country's mineral deposits. Following the approval, CRTX is soon expected to flag off its business in China with its initial priority being exploration of copper, and thereafter expanding into coal and potash.

Chinalco ( ACH ), over time, has been promoting new geological technologies, aligning itself with the initiatives of the Ministry of Land and Resources in China.

Conversely, Rio Tinto Plc is engaged in exploring, mining and processing of the earth's mineral resources, producing a broad range of metals and minerals.

The integration of their respective competencies is expected to develop and enhance China's domestic resources supply capabilities. Chinalco holds a 51% interest in the JV and Rio Tinto the rest.

Headquartered in London, UK, mining giant Rio Tinto competes with big banners like BHP Billiton Ltd . ( BHP ) and Vale S.A. ( VALE ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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