Executive summary
The report consists of three major parts, which are firstly divided into providing background information of Rio Tinto and its biggest competitors BHP and Vale in the mining industry. A SWOT-analysis takes into consideration the external factors of the market as well as the internal factors which may have an impact on the financial statements of Rio Tinto.
Secondly, the main purpose of this paper is to compare Rio Tinto’s financial ratios to its biggest competitor BHP. Investors may consider them as good predictors of failures or advantages in the business and may predict if a company can survive in the future. The results illustrated in this paper, show that there are some differences between the two companies in
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Rio Tinto’s strongest competitors are BHP Billiton Ltd. and Vale. Together with Rio Tinto they hold 65 per cent of the entire iron ore section (Mining Australia 2013).
BHP Billiton Restricted (BHP) has the most diversified portfolio of high quality resources in the entire world. All companies have in common the generation and dissemination of minerals and their products, but BHP is the only company which focuses also strongly on petroleum. Therefore BHP has a competitive advantage against rising costs, which have in total a negative effect on the companies’ earnings (BHP Annual report 2013).
Contrastingly Vale is the second biggest mining company on the planet, likewise Vale represents to be the world’s largest producer iron mineral and -pellets. Logistic frameworks such as railroads, airports and harbours in Brazil are another big operating factor. Also several joint-ventures gives the company the opportunity to invest in steel and energy sections. Vale also operates in different countries than Rio Tinto and BHP do that gives them another competitive advantage. (Vale Annual Report 2013).
3. SWOT-Analysis of Rio Tinto
Due to recent announcements in the mining industry and changes throughout the globe, a SWOT-Analysis provides Rio Tinto with supporting information and data of which problems can arise and how the position
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BHP Billion, a merging cooperation of BHP and Billion in 2010 (BHP Billiton, 2011), is a world leading company in mining and resource exploiting. According to ASX data, BHP Billion has the largest business scales in the Australian market, AU$166 billion of market capital and AU$71 billion of annual operating revenue in FY13 (Australian Securities Exchange, 2014). Over 128,800 employees and contractors work in 26 countries worldwide to create value for their shareholders (BHPB Annual Report, 2013). The core business has been classified into five units: petroleum, copper, iron ore, coal and aluminum, making 20%, 18%, 17%, 31% and 14% respectively in the revenue of FY13. It can be seen from Graph 1 that although iron ore was not the segment with the largest assets, it still returned with the largest revenue and highest ROA rate in 2013. The following paragraphs will focus on the strategy analysis on the segment of iron ore and how it can conquer possible threats
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A few of their major competitors are: Lockheed Martin, Honeywell, General Dynamics, Raytheon, Embraer and Rockwell Collins. Following the merger with McDonnell Douglas, Lockheed Martin could not keep up in the commercial airlines industry and now only manufactures military aircraft. Lockheed is now their largest competitor for government contracts.
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Rio Tinto is the second largest supplier of the iron ore in the world with the 153 million tones produced in 2008. The company large numbers of iron ore mines are located in the Australia, South America, Canada, India and Guinea with the majority interest in Pilbara Iron (Perth, Australia). Rio Tinto is the first mine open in Pilbara in the year 1966. Pilbara provides one of the world finest operations, which includes 15 iron ore mines, four port facilities, 1700 km rail network and related infrastructure. It is about to adopt new generation technologies for the safety and the environment performance with the help of the operation Centre in Perth. Not only for the performance but also to deliver greater efficiency with the lower production
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Perhaps by obtaining the acceptance of the local population, Rio Tinto was able to mitigate any threats from new entrants into the market at the specific location as well; allowing control of one of the five forces that shape industry competition to remain in check. Finally, helping to form the International Council on Mining and Metals should have allowed them strategic power over existing competitors (another of the 5 forces).
The employees are also exposed to build and maintain strong partnerships via value chain. This will aid the workforce to maximize value from assets and to explore new opportunity. This is listed down under the strategy focus of 4P’s (portfolio, performance, people and partners). (Performance with purpose, 2017). The appointment of two executives on the management team had boosted the performance of employees and partnership capabilities. This had been done under the leadership of Chief Executive J-S Jacques. Moreover, cost reduction and also improvisation on effectiveness done by Hugo Bague, Rio Tinto Executive Committee member so that company can increase the capacity on financial