INTRODUCTION RIO TINTO:

Rio Tinto is the worlds third largest mining company and the eighth highest FTSE 100 company
in terms of MARKET capitalization !w"# $01$% Anon&# $01$%& 'ith operations spread across
si( continents# and acti)ities ranging from e(ploration to e(traction to processing# Rio Tinto has
grown s*+stantially from the Spanish mine that it started from in 1,-.& Ann*al re)en*e in $011
was /00&1 +illion# profit margins stood at $23# and the company c*rrently employs 0-#1.0
people worldwide 4r+is# $011%& MARKET capitalization stands at /2.&. +illion Anon&# $01$%
Rio Tinto foc*ses its efforts on finding and mining fi)e gro*ps of minerals& These are al*min*m#
copper# diamonds and ind*strial minerals# energy minerals coal and *rani*m%# and iron ore& The
central strategy of the +*siness is to find large# cost5effecti)e mines that will remain )ia+le in the
long5term Rio Tinto !6"# $011%# and the company claims that a long5term approach *nderpins
all of its wor7&
This aims to identify and analyze the competiti)e and strategic position of Rio Tintos 8ron 4re
gro*p& Academic models ha)e +een *sed to assess +oth the micro and macro en)ironment with
the intention of identifying +oth their c*rrent and f*t*re position&
PESTEL ANALYSIS
General Environment:
For the p*rpose of this report# a !ESTE6 analysis has +een cond*cted to gi)e a general o)er)iew
of the e(ternal en)ironment Rio Tinto 8ron 4re operates in&
Political:
!olitical factors incl*de the Reso*rce s*per profits ta( co*pled with forecasted drop in iron ore
income d*e to "hinese anti5inflationary policy Martin 9 "ole+atch# $01$%# and the A*stralian
go)ernments "lean Technology !rogram:
Economic:
"*rrent dynamism directly affects Rio Tintos performance in the mar7et& Ma;or threats incl*de
falling commodity prices# E*ropes c*rrent de+t crisis# the slowing down of "hinas economic
growth SM<# $01$% and an increase in iron ore o*tp*t from the =nited States SM<# $01$%&
>*ring $011# 2?3 of the worlds steel was prod*ced in "hina <ariharan9>odono)a# $01$%&
8ron ore is an essential ingredient in the creation of steel& 8mported ore acco*nted for .23 of
"hinese 8ron ore cons*mption in $011 <ariharan9>odono)a# $01$% appendi( 10&1%# and
A*stralian mining operations acco*nt for 223 of these imports appendi( 10&$%&
8ts e(pected that ,03 of Rio Tintos earnings in $01$ will come from 8ron 4re <olton 9
>a)ies# $01$%# increasing dependent on "hina& From $010 to $01$# Asia prod*ced 02&.?3 of
world cr*de steel: "hina itself prod*ces 20&.?3 <ariharan9>odono)a# $01$% appendi( 10&.%&
The *pward trend for steel prod*ction in Asia is increasing# whereas prod*ction in the rest of the
world is falling Ming5cho*# $01$% appendi( 10&2%&
Fl*( in the "hinese mar7et is ca*sing pro+lems for mining companies with a possi+le end to
growing 8ron ore prices @anda# $01$%& The 8ron ore gro*ps *nderlying earnings from the first
half of $01$ were $03 lower than the $011 first half d*e to lower iron ore prices RioTinto#
$01$%&
Social:
"ertain social trends affect the prod*ction and cons*mption rates of Rio Tinto& These threats
incl*de a recent warning of a waning demand for iron ore# the possi+ility of a glo+al s*pply gl*t
Ker# $01$% and the increase in social stigma s*rro*nding climate change and car+on emissions&
Technological:
Recent ad)ances affecting the f*t*re of mining incl*de an increase in the *se of f*lly a*tomated#
dri)erless tr*c7s and trains Ker# $01$% and the rolling o*t of the Aational Broad+and Aetwor7&
Environmental:
En)ironmental factors are a ma;or tal7ing point s*rro*nding Rio Tinto and the decisions that they
ma7e as a company& A*stralia is now the world leader in "ar+on emissions per capita# howe)er
this still only acco*nts for 1&23 of world poll*ters&Another ma;or concern for the p*+lic is Rio
Tintos a+ility to reha+ilitate and restore *sed *p mining facilities&
Legal:
Rio Tinto m*st follow n*mero*s laws# acts and also 7eep the =nions happy# howe)er there ha)e
+een a few recent introd*ctions which incl*de the Aational Creenho*se and Energy Reporting
Act $00-& Rio Tinto are now reD*ired to report and identify on matters incl*ding +*t not limited
to greenho*se gas emissions# greenho*se gas pro;ects# energy prod*ction and energy
cons*mption&
Strategic Analyi:
Concl!ion
Rio Tinto is s*ccessf*lly co)ering all +ases in e(ternal threats and opport*nities& The power of
+*yers is partic*larly important in the moderately *npredicta+le en)ironment indicated in the
T*r+*lence model& >*e to the recent decrease in demand in "hina there has +een a fall in the
price of iron ore& This also lin7s in with !ESTA6 as the economic climate and the falling
commodity prices& 4)erall Rio Tinto 8ron 4re is in a great position to ta7e ad)antage of all
opport*nities and com+at threats&
S"OT ANALYSIS
Strength:
1& Clo+al leader in e(traction of al*min*m and copper oreE
$& <as ind*stry leading technology for e(traction
.& >i)ersified +*siness with an employee force of nearly -0#000
2& Strong +rand presence across the glo+e
?& 4ne of the leaders in iron ore# al*min*m# diamonds&
0& M*ltiple "ommodity E(tractionE The materials ind*stry has n*mero*s swings in demand&
These changes can significantly affect materials prices# so a di)ersified miner or materials
+*siness is optimal& >i)ersity e)ens o*t indi)id*al commodity swings&
-& Economies of SaleE More people can prod*ce more goods and see7 synergies +etween other
ind*stries within a single co*ntry& Scale can also +enefit +rain power# +eca*se more people can
com+ine to prod*ce +etter ideas
,& =se of latest technology red*ce o)erall ope( and s*staining cape(
1& "ompany is internationally spread and well connectedE if a +*siness tra)eler needs to access
they money in another co*ntry# they can either +an7 with a company that has +ranches in that
co*ntry# or theyFll ha)e to wor7 with a third party# which will increase the fees and lower their
prod*cti)ity
"ea#ne:
1& Financial "onditionE )ery high de+tE company s*ffers from long term de+t&
$& 4perational inefficiencies d*e to go)ernment inter)ention&E a+iding with go)ernment r*les and
reg*lations# in addition with ta(es and royalties +y the go)ernment for e&g& in 8ndia add *p to
0$3 of total ope(&
.& "ommodity wise re)en*e generation is a+r*pt# hence if the !il+ara pro;ect is affected it will
affect the company in worst way as it generates the ma(im*m re)en*e for Rio Tinto&
2& >ifferences +etween the residents near mining area and Rio Tinto d*e to mining&
O$$ort!nity:
1& Rising need of al*min*m as replacement of ironE Rio Tinto is glo+al leader when it comes to
al*min*m prod*ction&
$& 4pport*nities to e(pand +*siness in other territories&
.& B*siness di)ersification alongwith other international players&
Threat:
1& Strict reg*lations +eing imposed on en)ironmental and sec*rity iss*es
$& Golatility in the commodity mar7et
.& Acti)ist gro*p press*ring go)ernments to impose strict reg*lations
2& Co)ernment reg*lation ta(es and royalties increase the cost of prod*ction ad)ersely&
PORTERS %I&E %ORCES ' Government
!orters fi)e forces is *sed to create a starting point in determining the firms strategic position in
the c*rrent mar7et& The effects of go)ernment in the mining ind*stry are significant: therefore
the addition of go)ernment as a force is reD*ired& The fl*ct*ating power of +oth +*yers and
s*ppliers along with go)ernment are the predominant forces in the mining ind*stry& The analysis
finds Rio Tinto in a good position o)erall# +*t highlights some challenges which m*st +e
considered in the near f*t*re&
(argaining Po)er o* S!$$lier
<igh competition among s*ppliersE <igh le)els of competition among s*ppliers acts to red*ce
prices to prod*cers& This is a positi)e for Rio Tinto&
6ow concentration of s*ppliersE A low concentration of s*ppliers means there are many s*ppliers
with limited +argaining power& 6ow concentration of s*ppliers positi)ely affects Rio Tinto&
>i)erse distri+*tion channelE The more di)erse distri+*tion channels +ecome the less +argaining
power a single distri+*tor will ha)e& This positi)ely affects Rio Tinto&
"ritical prod*ction inp*ts are similarE 'hen critical prod*ction inp*ts are similar# it is easier to
mi( and match inp*ts# which red*ces s*pplier +argaining power: a positi)e for Rio Tinto&
Gol*me is critical to s*ppliersE 'hen s*ppliers are reliant on high )ol*mes# they ha)e less
+argaining power# +eca*se a prod*cer can threaten to c*t )ol*mes and h*rt the s*ppliers profits&
This can positi)ely affect Rio Tinto&
<igh commodity prices are dri)ing shortages in mining eD*ipment& This means Rio Tinto m*st
+e caref*l when o+taining s*pplies to meet demand# while 7eeping costs down& As demand for
their inno)ati)e technology increases# the strength of s*ppliers will li7ely increase as fewer will
+e capa+le of s*pplying reD*ired specialist eD*ipment&
(argaining Po)er o* C!tomer
6ow +*yer price sensiti)ityE 'hen +*yers are less sensiti)e to prices# prices can increase and
+*yers will still +*y the prod*ct& 8nelastic demand positi)ely affects Rio Tinto&
!rod*ct is important to c*stomerE 'hen c*stomers cherish partic*lar prod*cts they end *p
paying more for that one prod*ct& This positi)ely affects Rio Tinto&
6arge n*m+er of c*stomersE 'hen there are large n*m+ers of c*stomers# no one c*stomer tends
to ha)e +argaining le)erage& 6imited +argaining le)erage helps Rio Tinto H6arge A*m+er 4f
"*stomersH has a significant impact# so an analyst sho*ld p*t more weight into it&
6imited +*yer choiceE 'hen c*stomers ha)e limited choices they end *p paying more for the
choices that are a)aila+le& 6imited +*yer choices are a positi)e for Rio Tinto&
Threat o* S!+tit!te
6imited n*m+er of s*+stit*tesE A limited n*m+er of s*+stit*tes mean that c*stomers cannot
easily find other prod*cts or ser)ices that f*lfil their needs& 6imited s*+stit*tes are a positi)e for
R84 T8AT4& This D*alitati)e factor will lead to a decrease in costs& H6imited A*m+er 4f
S*+stit*tesH will ha)e a long5term negati)e impact on this entity# which s*+tracts from the
entityFs )al*e& These statements will ha)e a short5term negati)e impact on this entity# which
s*+tracts from its )al*e& H6imited A*m+er 4f S*+stit*tesH is a diffic*lt D*alitati)e factor to
o)ercome# so the in)estment will ha)e to spend a lot of time trying to o)ercome this iss*e&
Intenity o* E,iting Rivalry
1& 6arge ind*stry sizeE 6arge ind*stries allow m*ltiple firms and prod*ces to prosper witho*t
ha)ing to steal mar7et share from each other& 6arge ind*stry size is a positi)e for Rio Tinto
$& Fast ind*stry growth rateE 'hen ind*stries are growing re)en*e D*ic7ly# they are less li7ely to
compete# +eca*se the total ind*stry size is also growing& The only way to grow in slow growth
ind*stries is to steal mar7et5share from competitors& Fast ind*stry growth positi)ely affects Rio
Tinto&
.& Relati)ely few competitorsE Few competitors mean fewer firms are competing for the same
c*stomers and reso*rces# which is a positi)e for Rio Tinto
Rio Tinto seems to )iew competitors as opport*nities as well as threats& 8n late $00,# B<!
Billiton a+andoned its hostile +id to acD*ire Rio Tinto +eca*se Rio Tinto was shielded +y their
own strength# t*r+*lence tro*+le for B<! and the s*pport of reg*latory a*thorities& "*rrent
disc*ssion +etween Rio Tinto and Gale o)er the sharing of railway infrastr*ct*re in other areas of
mining highlights the sometimes cooperati)e nat*re of an oligopoly and their strength within it&
Ri)alry is a ma;or factor in the mining ind*stry# +*t can +e *sed to Rio Tintos ad)antage&
Threat o* Ne) Com$etitor
1& Strong distri+*tion networ7 reD*ired E 'ea7 distri+*tion networ7s mean goods are more
e(pensi)e to mo)e aro*nd and some goods dont get to the end c*stomer& The e(pense of
+*ilding a strong distri+*tion networ7 positi)ely affects Rio Tinto&
$& Strong +rand names are importantE 8f strong +rands are critical to compete# then new
competitors will ha)e to impro)e their +rand )al*e in order to effecti)ely compete& Strong +rands
positi)ely affect Rio Tinto&
.& Ad)anced technologies are reD*iredE Ad)anced technologies ma7e it diffic*lt for new
competitors to enter the mar7et +eca*se they ha)e to de)elop those technologies +efore
effecti)ely competing& The reD*irement for ad)anced technologies positi)ely affects Rio Tinto&
2& Ceographic factors limit competitionE 8f e(isting competitors ha)e the +est geographical
locations# new competitors will ha)e a competiti)e disad)antage& 6imiting geographic factors
positi)ely affect Rio Tinto&
?& <igh learning c*r)eE 'hen the learning c*r)e is high# new competitors m*st spend time and
money st*dying the mar7et +efore they can effecti)ely compete& <igh learning c*r)es positi)ely
affect profits for Rio Tinto&
The mining ind*stry is well 7nown for ha)ing an e(tremely high set *p cost& Along with high
le)els of go)ernment control o)er leasing and licensing# this creates a ma;or +arrier to entry&& The
c*rrent la+o*r shortage in A*stralia Rios +iggest concentration of 8ron ore assets are +ased
here% co*ld ca*se ma;or +*yers to loo7 elsewhere& This may decrease +arriers to entry&
Government
The Co)ernment has strong in)ol)ement in the mining ind*stry& Rio Tinto m*st wor7 within the
terms of their lease or license to access land# the right to transport materials and reha+ilitate the
en)ironment when they lea)e& Caining permits to new mines can +e diffic*lt : there may +e
significant iss*es related to indigeno*s nati)e title# and significant royalties m*st +e paid on top
of reg*lar company ta( &
(CG -ATRI.
By di)iding the matri( into fo*r areas# fo*r types of Strategic +*siness *nits SB=%
can +e disting*ished&
STAR

(!il/
Urani!m
Al!mini!m
Diamon/
(a!,ite
Gol/
Co$$er
0UESTION -AR1
Invet (!il/
(a!,ite

Divet
CAS2 CO"
Iron Ore Coal
Conoli/ate 2arvet
DOG
Divet
<igh 6ow
Star:
Stars are high growth +*sinesses or prod*cts competing in mar7ets where they are
relati)ely strong compared with the competition& 4ften they need hea)y in)estment to
s*stain their growth& E)ent*ally their growth will slow and# ass*ming they maintain
their relati)e mar7et share# will +ecome cash cows& 8n Rio Tinto there are 0 *nits in
star# which are diamond gold copper potassi*m# al*min*m# they need high in)estment
to capt*re the mar7et share& They *se high cash and generate high share as well
Cah Co):
High
Low
"ash cows are low5growth +*sinesses or prod*cts with a relati)ely high mar7et
Share& These are mat*re# s*ccessf*l +*sinesses with relati)ely little need for
in)estment& They need to +e managed for contin*ed profit 5 so that they contin*e to
generate the strong cash flows that the company needs for its Stars& For Rio Tinto there
are only two *nits in cash cow which are 8ron 4re and "oal which contin*o*sly gi)es
re)en*e to Rio Tinto# referring to the pre)io*s year fig*re the total re)en*e was
I111$&1 +illion which is eD*i)alent to the 00&1 3 of the mar7ets o)erall )al*e& They
are in mat*re stage which needs low in)estment and gi)e high re)en*e&
0!etion mar#:
J*estion mar7s are +*sinesses or prod*cts with low mar7et share +*t which operate in
higher growth mar7ets& This s*ggests that they ha)e potential# +*t may reD*ire
s*+stantial in)estment in order to grow mar7et share at the e(pense of more powerf*l
competitors& For Rio Tinto there is only one *nit in D*estion mar7 which is Ba*(ite&
Management ha)e to thin7 hard a+o*t HD*estion mar7sH 5 which ones sho*ld they in)est
inK 'hich ones sho*ld they allow to fail or shrin7K
Dog:
=ns*rprisingly# the term HdogsH refers to +*sinesses or prod*cts that ha)e low relati)e
share in *nattracti)e# low5growth mar7ets& >ogs may generate eno*gh cash to +rea75
e)en# +*t they are rarely# if e)er# worth in)esting in&
=sing the B"C Bo( to determine strategy5
8n the diagram a+o)e# the company has one large cash cow# a large dog and two smaller
stars and D*estion mar7s& "on)entional strategic thin7ing s*ggests there are fo*r
possi+le strategies for each SB=E
1& B*ild Share E <ere Rio Tinto in)est h*ge amo*nt in Star to increase the mar7et share&
$& <old E <ere the Rio Tinto in)ests ;*st eno*gh to 7eep the SB= in its present position
.& <ar)est E <ere Rio Tinto red*ces the amo*nt of in)estment in order to ma(imize the
short5term cash flows and profits from the SB=& This may ha)e the effect of t*rning
Stars into "ash "ows&
2& >i)estE The company can di)est the SB= +y phasing it o*t or selling it 5 in order to
*se the reso*rces elsewhere e&g& in)esting in the more promising HD*estion mar7sH%&
Concl!ion:
Rio Tinto has a di)ersified portfolio& Rio Tinto has $ cash cow *nits and 0 stars *nits& Rio tinto
consists of ,03 star and $03 cash cow thro*gh which they are trying to sec*re f*t*re re)en*e#
which is good strategy with good growth for the f*t*re&