Analysis of Rio Tinto Mining Company

This paper presents an analysis of Rio Tinto mining company in terms of its strategy in the next five years. The paper illustrates that Rio Tinto is an Australian and United Kingdom registered exploration and mining company. Australia, “Rio Tinto” is considered to be among the fast developing mining companies. The company’s main products include salt, iron ore, gypsum, uranium copper, and coal. Also, the paper indicates that Rio Tinto operates in an oligopoly market structure which involved very few companies. Further, the paper illustrates that Rio Tinto has an “inelastic demand for its iron ore.” This is as a result of less sensitivity of the products demand to price changes. Also, the paper indicates how the company has created an impact on the “rampage of Cyclone Veronica” across the coast of Pilbara.

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Economics for business
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Executive summary
This paper presents an analysis of Rio Tinto mining company in terms of its strategy in
the next five years. The paper illustrates that Rio Tinto is an Australian and United
Kingdom registered exploration and mining company. Australia, “Rio Tinto” is
considered to be among the fast developing mining companies. The company’s main
products include salt, iron ore, gypsum, uranium copper, and coal. Also, the paper
indicates that Rio Tinto operates in an oligopoly market structure which involved very
few companies. Further, the paper illustrates that Rio Tinto has an “inelastic demand for
its iron ore.” This is as a result of less sensitivity of the products demand to price
changes. Also, the paper indicates how the company has created an impact on the
“rampage of Cyclone Veronica” across the coast of Pilbara.

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Contents
Executive summary................................................................................................................................2
Introduction..............................................................................................................................................4
Industry background.............................................................................................................................4
Market structure......................................................................................................................................4
Factors that influence the demand for the company's product (s)............................................6
Factors that influence the supply for the company's product (s)...............................................7
Elasticity...................................................................................................................................................9
Impacts of an event on the industry/company..............................................................................10
Conclusion.............................................................................................................................................10
References.............................................................................................................................................11

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Introduction
The purpose of this paper is to make a world market report about Rio Tinto
mining company. In this case, we shall look at a detailed background of the company
such as its major aims, objectives, products, revenue, employees and many others. In
addition, the paper will describe the market structure of the company by illustrating its
leaders, their statistics and many others. In addition, the report will also consider the
demand side of the company in terms of demand elasticity for the products. Also, a brief
description of the event that has created a substantial impact on the industry will also be
explained in the people. In brief, the report covers a detailed structure of the company
(Rio Tinto) in terms of its revenue, contribution to the GDP of the company, employment
structure, and many others (Calibre 2014).
Industry background
Rio Tinto is an Australian and United Kingdom registered exploration and mining
company. The company is among the popular “mining companies “in the region. The
main products of Rio Tinto include salt, iron ore, gypsum, uranium copper, and coal. In
addition, the company processes some materials that is to say; bauxite into aluminum
and alumina, and "ore into iron". The by-products of the company include lead, silver,
and gold. The company was formed way back in 1873 by a syndicate of Matheson,
Deutsche, and Punchard, Clark, and company (Lilleyman 2013). Rio Tinto's executive
officers are located in Melbourne. The company is also made up of partly or wholly
subsidies, associated companies, and joint ventures. The major activities performed by
the company include processing, mining and finding mineral resources across the
world. The company covers over forty countries in 6 continents. By 2018 the company
had a revenue structure of US$ 56.036 billion. In addition, the company has over thirty-
five thousand employees across the world (Walsh 2009). The vision of the company is
to become a leading metal and mining company. As a way of achieving its vision, the
company aims at maximizing the returns of shareholders by sustainably developing,
processing and finding natural resources across the world. Also, the company has a
competent financial resource made up of innovation potential that leads to the
development influence the development of the responsive design to pursue the
company's strategy. As a result of an increase in the prices of commodities, market
demands and decreasing productivity of the workforce the company needs to make a
step into innovation. As a mining company, Rio Tinto's 44% sales are obtained from
exploration and extraction of "iron ore." The company has a large "market capitalization"
of US $27 billion making it the 2nd largest mining company in Australia (Fantinel, &
Rusu 2013).
Market structure
Rio Tinto operates in an oligopoly market structure whereby the industry or
market is only dominated by very few large sellers. The mining sector of Australia is an
oligopolistic market as a result of collusion that results in reduced competition. In this
case, Rio Tinto operates in an oligopoly market structure because there are few sellers
whereby the demand for products is high and production is low. In addition, the
decisions made by the Rio Tinto company highly influenced by other firms (Lilleyman

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2012). Also, the company majorly deals in mining of iron ore which is very hard for any
company to take part in as a result of various entry barriers such as government
regulation. Also, Rio Tinto's strategic plans depend on the influence of market factors.
Also, the firm operates in an oligopoly market because it has very few major competitors
that is to say Bhp Billion and Vale. In addition, the commodities that the company deals
in are homogeneous meaning they have very close substitutes with the neighbors.
Compared to other “mining companies” like Bhp Billiton, the company deals in major
products such as Iron ore making it be in an oligopoly market structure. In addition, Rio
Tinto deals in limited natural resources which need only large firms. Also, the resources
dealt in by Rio Tinto are very hard for small companies to invest in making the market
oligopoly (Farrell 2013).
Figure one: Oligopoly market structure
Source: https://www.intelligenteconomist.com/market-structure-oligopoly/
The above graph indicates that in the absence of agreements, firms in an
oligopolistic market structure don't change their output according to the changes in
costs. The figure illustrates that Marginal Revenue = Marginal cost on the Marginal Cost
curve. In addition, the quantity and the price remain the same regardless of the cost.
The market leaders of the mining industry in Australia include the following; NHP
Billion, this is a 2nd largest company in Australia according to its capitalization
measured by over US $97 billion. The company specializes in production and
exploration of iron, ore, copper, gold, and coal. In addition, the company gets some of
its revenue from petroleum refining, exploration, and production. As a major producer,
BHP has its operational headquarters in London and Melbourne (Garvey 2013). Also,

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another market leader of the mining industry is South 32, the company is the 3rd largest
miner after BHP and Rio Tinto. The company is relatively new in the market and it
emerged from BHP in 2015 with an intention of streamlining the business. Basically, the
company focuses on producing alumina, nickel, lead, nickel, and silver. The company
operates in Australia, South Africa, and South America with less strategy in China which
is not the case with other mines. However, the company has put much of its focus in
European and African countries. As an international company, Rio Tinto is among the
most dominant Australian mining companies (Grad 2010).
Factors that influence the demand for the company's product (s)
This section illustrates the factors that influence the demand for “Rio Tinto's Iron
ore” in the market. In this case, it is iron ore is considered as the most influential
company's product. The major two determinants of demand for the company’s product
are; First, product price. In this case, increased“Iron ore” pricesresults into reduced
demand for such a product as buyers are not favored by the market prices. For Rio
Tinto, increased“Iron ore” prices results into increased revenue to the company.
Currently, a rise in “Rio Tinto's iron ore” prices has resulted into a 14% increase in
revenue. Despite reducing the demand for the commodity, the higher prices generate
high income for the company. On the other hand, a decrease in the price of the
commodity leads to increased demand for “Iron Ore”(IBM 2009). In this case, if the
prices of iron ore reduce, buyers will be motivated to buy more and stock for the future.
However, a decrease in the price of the commodities will affects the company's revenue
as it receives reduced income for iron ore. Currently, the product’s price hasdeclined
resulting to trading of around "$US 87 tonne" in the market. Also, a decline in “iron
ore’s” price is considered as a major factor resulting to a decrease of 5.0 percent of the
commodity leading to a loss of $US 65.4 billion. Therefore, the product’s price is
considered as a major “determinant of demand” as it influences the customers in the
market to buy more of the commodity (Harding 2014a).
Second, expectation, if buyers of “iron ore” expect the commodity to gain value in
the future, demand increases. In this case, if buyers of the product expect future
increase in demand, they will be prompted to buy more of iron ore so as to continue
supplying their customers. Also, any sort of price increase expectations will prompt
buyers to purchase more of the product so as to stock for the future use (Lynch, &
Hamilton 2012). The buyers of iron ore aim at avoiding the burden of higher prices in
the future. For example, the recent decline of iron ore prices in Australia has led to
increased demand because buyers are willing to stock more of the commodity so as to
avoid being over exploited by the higher prices in the future. However, the expectation
of price decreases may not increase demand as buyers may expect a continuous fall in
the prices. On the other hand, if there are no expectations of price fall or increase,
buyers may not be in the position to demand more of the commodity leading to normal
demand (Harding 2014b).

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Figure two: Determinants of demand
Source: https://www.economicshelp.org/blog/1811/markets/diagrams-for-supply-and-
demand/
According to the figure above, reduced “iron ore”prices from P2 to p1 leads to an
increase in the demand from D1 to D2
Factors that influence the supply for the company's product (s)
The determinants of supply refer to different factors which create an influence on
the quantity of a given service or product to be supplied. In this case, the major
determinants of Rio Tinto's “supply of iron ore” include; first, product price which affects
the ability and willingness to supply. In most cases, no company would wish to supply
its products in the market when the price has fallen. The quantity supplied by Rio Tinto
is always low if “iron ore’s” price falls. Recent studies indicate that “a decline in the price
of iron ore forced Rio Tinto to reduce the quantity of the product supplied in the market”.
On the other hand, an increasedproduct’s price results into increased quantity supplied.
In case the prices of Iron ore are high, Rio Tinto supplies more of the product so as to
obtain increased profits (Mudd 2010).
Second, the production cost of iron ore, in case Rio Tinto incurs an increased
cost of producing the product, its profits lowers down forcing it to reduce on supply. Just
like any other company, Rio Tinto aims at profit maximization meaning that an increase
in the product’s cost lowers down the amount of the commodity supplied in the market.
Factors that result into increased production costs for “iron ore” by Rio Tinto include
wage rate, government taxes and regulations and input prices. Also, reduced production
cost of “iron ore” resultsinto increased quantity supplied in the market. In case Rio Tinto

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incurs a reduced cost of producing Iron ore, it will be in the position to produce more of
the product hence increased quantity supplied. Therefore, the production cost of iron
ore strongly influences the quantity supplied in the market (Wade 2009.).
Figure three: Supply curve
The figure above indicates that a rise in the costs will lead to reduced production
resulting in the shift of the “supply curve” towards the left
Source: https://www.economicsonline.co.uk/Competitive_markets/Shifts_in_supply.html
Figure four: Supply curve

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The figure indicates that a decline in the costs of production leads to increased
production leading to a change in the “supply curve” towards the right.
Source: https://www.economicsonline.co.uk/Competitive_markets/Shifts_in_supply.html
Elasticity
Increased production of iron over by Rio Tinto Company is highly accelerated by
population growth, economic progress, and industrial development. In addition, the
demand for Iron ore is as a result of increased demand for "steal" which is also fostered
by increased demand for construction materials. Therefore, this implies that “the
demand for iron ore” is inelastic because the product’s demand is not sensitive to price
changes. For example, the recent fall in “iron ore’s” prices due to increased supply did
not result into increased demand of the product. The demand for iron ore remained
constant (McGagh 2014).
Factors that affect the elasticity of demand for iron ore
The factors that affect the elasticity of demand for iron ore include the following;
first, postponement of consuming the product. The purchase of Iron ore cannot be
postponed because it is needed urgently by construction companies as building
materials. Therefore, postponing buying of iron ore by construction companies implies
that their activities will stop making the product to have an inelastic demand (Walsh
2010). Unlike other commodities which can be postponed such as biscuits, iron ore is
necessary for making steel for construction companies. Second, the use of the product,
in case the product has various uses, its demand is elastic but if it has very few uses its
demand becomes inelastic. In this case, iron ore has few uses meaning that an
increase in the price of the product will not affect its demand because it has very few
uses which are similar making it difficult to select the most urgent one. This indicates
that “iron ore” experiences an inelastic demand (McGagh 2012).
Impacts of an event on the industry/company
Recently, the company has been impacted by the rampage of “Cyclone
Veronica” across the coast of Pilbara. The company illustrates that the rampage cost it
over fourteen million times as a loss in production. Rio's CEO indicates that "Our iron
ore business faced several challenges at the start of this year, particularly from tropical
cyclones. As a result, and following the continuing assessment of damage at the port
resulting from the cyclones and other minor disruptions, 2019 guidance for Pilbara
shipments is reduced to between 333 and 343 million tonnes." The company indicates
that the cyclones affected their quarterly operations leading to reduced “iron ore”
production. In this case, the Cyclone Veronica affected the market supply of iron ore
because the company was not in the position to supply more of the product (Lynch, &
Hamilton 2012). This was as a result of increased costs of transporting the products. As
a result of demand made at the terminal, the company faced overhead expenses of
using other ports which are far making it too expensive leading to reduced supply. As a
result of the Cyclone Veronica's rampage, Rio Tinto's exports have greatly declined as
compared to the previous years. Also, Cyclone Veronica's rampage has led to

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increased prices in the market as a result of reduced quantity supplied. In order to
recover the overhead production cost incurred by the Company, it decided to increase
the prices of commodities. As a result of reduced “supply of iron ore” from Brazil, the
prices of “iron ore” in the market have increased as compared to when the rampage had
to take place (Australian Mining Review 2014).
Conclusion
As a major Australian mining company, Rio Tinto has created an increased
revenue to the country. Increased gains from mining iron ore have been accelerated by
China that has increased the demand for the products. This has increased the prices of
iron ore across Australian and the world at large. As a result of being an oligopoly
market structure, Rio Tinto and other related companies have continuously enjoyed
increased profits from mining iron ore. Also, Rio Tinto has been in the position to grow
in over forty countries as a result of its strong innovation capability and financial
resource that helps it to responsively develop so as to obtain its business objectives. In
brief, the development of the company was as a result of its desire to become a
worldwide metal and mining company (The Australian Manufacturing 2014).

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Australian Mining Review. 2014. With Andrew Harding – Iron clad future. Retrieved from
http://www.miningreview.com.au/news/andrew-harding-iron-clad-future/
Caliber. 2014. Industrial Technology: AutoHaul® Project. Retrieved from
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perspective. Paper presented in the meeting of XXXII Triennial Congress of the
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