A solid result without an upside surprise isn't enough in this market as Rio Tinto Limited (ASX: RIO) is finding out today.
Shares in the iron ore giant fell 0.7% to $53.85 in early trade, even as its rival Fortescue Metals Group Limited (ASX: FMG) surged 4.2% to $2.38 after adding 6% the previous day when it released its quarterly production report that showed a big drop in cost.
There's nothing quite as dramatic in Rio Tinto's September quarter production numbers, although I think the results are pleasing with the miner posting a 17% year-on-year increase in shipments of its share of iron ore to 91.3 million tonnes.
The miner sold more of its stockpile of the ore to bolster exports, but its quarterly production of 86.1 million tonnes is still 12% ahead of the same time last year and is above what most brokers were expecting.
Management reiterated its calendar 2015 full year global shipment guidance of 340 million tonnes from its Australian and Canadian operations, as it looks to deliver 360 million tonnes annually in the following years.
Some experts believe Rio Tinto is well placed to exceed its longer-term guidance and that should be welcome news for shareholders as Rio Tinto is among the world's lowest cost producers and making robust profits is now dependent on the quantity of ore produced and not the price, which has halved over the past year.
But it wasn't all good news from Rio Tinto. Mined copper tumbled 24% to 115,000 tonnes due largely to mining issues at its Kennecott Utah copper project, and aluminum production of 830,000 tonnes was slightly below Bloomberg's consensus estimates of 851,000 tonnes.
Rio Tinto has tightened its 2015 copper production forecast to around 510,000 tonnes from a range of 500,000 to 535,000 tonnes and has reaffirmed its bauxite and aluminum target of 43 million and 3.3 million tonnes, respectively.
However, iron ore is Rio Tinto's main game and I believe the stock looks undervalued even if the iron ore price were to drop to around $US45-$50 a tonne in 2016 as most experts are predicting.
The stock is only suited for those that can tolerate the volatility and are willing to take a more than one-year view on the stock as I don't think the volatility will calm down, while the outlook for the Chinese economy remains so uncertain and opaque.
Nonetheless, a lot of the bad news is in Rio Tinto's share price and the miner has the balance sheet strength to weather a prolonged downturn in the market.
