Investment: Rio Tinto withstands the meltdown

RIO TINTO, the former RTZ mining group, turned in a respectable set of results yesterday, given the continued weakness in metals prices.

Pre-tax profits fell by 6 per cent to pounds 1.2bn but the company continued its cost-cutting programme and managed to maintain margins.

Companies like this are always a gamble on commodity prices but Rio offers investors more stability than rivals such as Billiton because of its broader spread of interests.

This has helped protect the company from the worst ravages of the commodity meltdown. The shares, which slumped to 566.5p last autumn, have recovered to 815p, just a penny lower on yesterday's figures.

Unlike Billiton, which is dominated by aluminium and steel, Rio Tinto is spread more evenly across copper, iron ore, gold and industrial minerals such as titanium dioxide and diamonds.

In some of these markets there has been carnage. The gold price is at its lowest point since 1978 at a price of $287 per ounce. The iron ore price is down by over 10 per cent year-on-year and the outlook here is poor.

In copper the price is at its lowest for 12 years. Stocks of copper, which account for 23 per cent of Rio's sales, have been rising due to increased production and demand has been weak.

But analysts suggest that a third of copper producers are not covering their cash costs and that a shake-out should be just around the corner.

Rio's chairman, Robert Wilson, is cautious on the outlook, saying that "the fragile global economy points to little, if any demand growth for us in 1999, even though the US continues to surprise".

However, some analysts say the shares are a decent hold, with the possibility of hedge funds piling back into the stock after selling heavily last year, a factor which helped push the price lower.

On full-year profit forecasts of pounds 1.2bn, the shares trade on a forward multiple of 17 and are worth holding.

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