HI5003 Economics for Business: Rio Tinto Australian Mining Analysis

This report provides a comprehensive analysis of Rio Tinto Company Limited within the Australian mining industry. It begins with an overview of Rio Tinto, highlighting its multinational presence, key commodities, and significant contributions to the Australian economy, including tax contributions and employment. The report then examines the Australian mining industry, noting its substantial contribution to the nation's GDP and exports. The industry's market structure is identified as oligopolistic, dominated by a few major players like Rio Tinto and BHP Billiton, with barriers to entry discussed. Key determinants of demand and supply for Rio Tinto's products, particularly iron ore and coal, are explored, along with an analysis of demand elasticity. A recent event, the launch of the Rig Control System (RCS 5) by Epiroc Drilling Solutions, is analyzed for its potential impact on supply, market quantity, and price. The report concludes by emphasizing the significant contributions of both Rio Tinto and the broader Australian mining industry to the nation's economic growth.

RIO TINTO COMPANY ANALYSIS i
ANALYZING RIO TINTO COMPANY LIMITED IN AUSTRALIA
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RIO TINTO COMPANY ANALYSIS ii
Executive Summary
Strategic management determines the success of a business. A successful business
has a highly skilled labor force and managers who are capable of making viable future
goals for the business (Poister 2010, p.246). An analysis of Rio Tinto and the Australian
mining industry has been done in this report.
Rio Tonto has been performing well not only n Australia but also in other five continents
in which it operates. The company employs over 47000 employs and contributes
significantly towards the Australian economic growth. The Australian mining industry
has been contributing significantly towards the nation’s economic growth accounting for
10 percent of the nation’s gross domestic product. The industry is oligopolistic as it is by
a few large companies, out of which the key ones are Rio Tonto and BHP Company.
Epiroc Drilling Solutions has recently launched the RCS 5 drilling system which is
expected to improve productivity and lower production costs for Australian mining
companies by automating their drilling operations. In a nutshell, Rio Tinto and Australian
mining industry contribute significantly towards the nation’s excellent economic growth
and better results are anticipated in the future.

RIO TINTO COMPANY ANALYSIS iii
Table of Contents
Executive Summary..................................................................................................................................ii
Introduction................................................................................................................................................1
The Company and the Industry Description..........................................................................................1
The Rio Tinto Company Limited Overview........................................................................................1
The Australian Mining Industry Overview..........................................................................................2
Analyzing the Australian Industry Market Structure.............................................................................3
Determinants of Demand and Supply for Rio Tinto Products.............................................................4
Demand Determinants.........................................................................................................................4
Supply Determinants............................................................................................................................5
Demand elasticity for Rio Tinto Products..............................................................................................5
Factors affecting Demand Elasticity for Rio Tinto’s Products.........................................................6
A recent Event Analysis...........................................................................................................................6
The Rig Control System Launch (RCS 5)..........................................................................................6
Likely Impact on Supply.......................................................................................................................6
Likely Impact on Market Quantity and Price......................................................................................6
Conclusion.................................................................................................................................................7
References................................................................................................................................................8

RIO TINTO COMPANY ANALYSIS 1
Introduction
Business strategic management determines the success of a business. Strategic
management involves assessing, analyzing, monitoring and planning business
operations with the aim of achieving the set objectives and goals (Keupp, Palmié and
Gassmann 2012, p.367). Due to globalization, the business world today has become
competitive as businesses have access to information and strategies which they can
apply to outdo their competitors and remain in operation (McMillan and Rodrik 2011,
p.17143). By use of strategic management, businesses can analyze their past activities
and current performance and make future goals and undertake the necessary decisions
towards achieving the set future goals (Wheelen et al 2017, p.55). A business should
keenly analyze its performance and make viable future goals for it to remain
competitive. This can be done by analyzing a business and its industry to forecast future
outcomes and make necessary goals and decisions based on the analyzed information.
Rio Tinto Company in Australia has been analyzed in this report with considerations of
its operations internationally since it is an international company which operates in
various nations. Also, the Australian mining industry where Rio Tinto Company operates
has been considered. An analysis of various factors about the industry such as its
revenue and contribution towards the Australian economic growth as well as its
employment rate and the growth rate has been done. The industry’s market structure
and the demand elasticity for the company’s products have also been discussed. The
analyzed factors provide crucial information for use in planning the company’s future
strategic goals.
The Company and the Industry Description
The Rio Tinto Company Limited Overview
The Rio Tinto Company Limited is an Australian-British Multinational Corporation that
was established during the year 1873 after investors joined together and formed a
group that ended up purchasing mine from the government of Spain in Rio Tinto at
Huelva in the nation of Spain (Australia, 2017). Since its establishment, the company
has grown at a fast pace through various means especially the merger and acquisition
formation and is currently among the most valuable top world brands with it's brand
value estimate being $3.1 billion which is quite a vast brand value beyond the reach of
many huge companies worldwide. The company’s primary focus is the minerals
extraction but it also involves itself in refining operations especially the iron ore and
bauxite refining. It deals with a wide range of commodities which include iron ore,
aluminum, copper, diamond, uranium, coal, gold, alumina, borates, bauxite, salt,
molybdenum, talc, and titanium dioxide. It operates in six continents with its major
operations being significant in Australia and Canada. The company is jointly
headquartered in Melbourne, Australian, and London, United Kingdom.
Rio Tinto is among the top metal and mining corporations in the world. In Australia’s
ranking of the top public companies, it is ranked position one out of the more than 2000
Australian companies in the list. In terms of net income, Rio Tinto is ranked position one
worldwide with estimated revenue of over $67 billion much of which is contributed by its

RIO TINTO COMPANY ANALYSIS 2
segment of iron ore which accounts for the company’s revenue of about $6.5 billion. In
terms of the market capitalization of the top world mining companies, Rio Tinto is
ranked position two with a market capitalization value of about $74.04 billion after the
Broken Hill Proprietary Company Limited which has estimated market capitalization
revenue of about $90.67 billion. In terms of diamond production, the company is ranked
position three worldwide with an estimated amount of diamond production of 18.4
million carats after De Beers and ALROSA.
Rio Tinto contributes much to Australian economic growth. The company contributes
approximately more than $4.9 billion in taxes to the Australian government. More than
47000 people are employed by the company worldwide with 21000 of them being from
Australia. The other companies which offer raw materials to the company have also
benefited much from its operations. During the year 2017, the company bought
approximately more than 9000 Australian businesses’ goods and services. The
company also focuses on developing the Australian community. For instance, in 2017
the company invested A$27.5 billion towards developing the nation’s services especially
with the Clontarf Foundation which tackles crucial Australian issues. The company also
supports the rights of the Indigenous Australians especially their land rights, education,
and employment. In a nutshell, Rio Tinto Company has not only contributed towards
improving the Australian economy but also that of the whole world at large and better
results are anticipated in the future.
The Australian Mining Industry Overview
Rio Tinto operates in the Australian Mining Industry and hence an overview of the
industry has been done. Mining activities generally involve geological and valuable
minerals’ extraction from the Earth especially ore bodies and placer deposits among
others (Kirsch 2010, p.87). Australian economic growth is significantly supported by the
nation’s mining industry. The industry is responsible for about 10% of the nation’s gross
domestic product which is an estimate of about $150 billion (Battellino 2010, p.63). The
industry leads as the top contributor to the Australian exports with its contribution being
estimated to be around 60 percent of the total Australian exports. In terms of mining
minerals, Australia is ranked among the top exporters of coal and iron ore which are
significant minerals mined by the Rio Tinto Company Limited. Among the coal
exporters, Australia occupies position two while among the Iron ore exporters it
occupies position one whereby its percentage contribution to the total Iron Ore
exportation is estimated to be 53 percent.
The Australian mining industry is among the top employers in Australia. The industry
approximately offers employment to about 251700 people. This huge number of
employees accounts for 2.0 percent (Tonts 2010, p.148) of the Australian total labor
force with top occupations being the shot Firers, drillers and miners having an
approximate number of 46300 workers. This is a significant contribution towards the
Australian total labor force but still behind some industries like the construction industry
which employs approximately 1 million people accounting for 9 percent of the total
Australian labor force.
The industry has approximately 7542 businesses. This is quite a huge number of
players in the industry but only a few companies such as the BHP Billiton, Rio Tinto,

RIO TINTO COMPANY ANALYSIS 3
Newcrest and South32 among others dominate the industry. The estimated revenue
raised by the industry is approximately over $260 billion with the highest revenue being
accounted for by the industry’s coal and gold mining sectors which contribute about 40
percent of the total industry’s revenue. The growth rate of the industry is 2.4 percent but
this is anticipated to increase due to improvement in the nation’s infrastructure and
mining investment. In conclusion, the Australian mining industry has been contributing
significantly towards the nation’s economic growth and that of the world at large and the
improvement of its performance is expected in the future.
Analyzing the Australian Industry Market Structure
The market structure is reflected by the market characteristics which define the mode of
operations by businesses within the market (Shibata 2014, p.321). These
characteristics affect the decision making for firms in the market such as pricing
mechanisms among others. Some of the characteristics include the number of firms
operating in the market, ease of entry or exit and products homogeneity degree among
others. The main four market structures include oligopoly, monopolistic, monopoly and
perfect competition.
Considering the Australian mining industry, it is oligopolistic in nature. An oligopoly
market structure has only a few significant key firms which depend on each other
concerning the market’s decision making such as pricing (Wang and Chen 2011,
p.1465). The Australian mining industry has many firms actually approximated to be
7542 in number. However, the industry is significantly dominated by a few companies
such as Rio Tinto and BHP Billiton among others. Some of the top significant mining
companies in Australia according to market capitalizations are “BHP Billiton, Rio Tinto,
Fortescue Metals Group, Newcrest Mining, and South32”. These companies are among
the top 30 world largest mining companies with estimated market capitalizations of
$90.67 billion, $74.04 billion, $14.68billion, $13.21 billion and $11.30 billion respectively
(Frik Els, 2018). This reveals the oligopolistic nature of the industry as many companies
operate in it but only a few of them have significant market share with the two large
ones being the BHP Billiton and Rio Tonto and the industry is said to be highly
concentrated.
Some of the significant barriers to entry in the Australian mining industry include long
registration procedures for companies to start operating (Kym Livesley, 2010), high
initial capital investment and economies of scale. It is costly for companies to initially
construct mines and purchase the necessary production tools for mining. The
established key players in the industry are able to use large economies of scale such as
economies of large scale production as they already have a large market share due to
the international establishment. Economies of scale enable firms to reduce production
costs and hence reduce the price for their commodities to a level which when new
entrants sell at will end up making severe losses. Also, lengthy procedures are involved
in registering new businesses in the Australian mining industry. For instance,
companies which involve simple operations obtain operation permit after approximately
6 months with the complex ones taking even years to obtain the permit to public
consultation procedures involved (Bice 2014, p.62).

RIO TINTO COMPANY ANALYSIS 4
The diagram below shows how firms in the Australian mining industry operate.
From the diagram, companies maximize their profit at any point between the Marginal
Cost Lower and Upper points at price P* and quantity Q*. An attempt by a company to
raise price above P* leads to severe losses as demand curve above equilibrium point is
highly elastic while price decrease below P* leads to little gain as demand curve below
the equilibrium point is inelastic and other companies lower prices as well due to
interdependence to avoid losses.
Determinants of Demand and Supply for Rio Tinto Products
Rio Tinto deals with a variety of goods and services. For analysis of demand and supply
determinant factors, iron ore and coal have been analyzed as some of the significant
products offered by the company.
Demand Determinants
Demand indicates the number of goods and services that consumers are willing and
able to purchase at a given price over a given period of time (Bakker, Van Veldhoven
and Xanthopoulou 2010, p.26). Various factors determine the demand for Rio Tinto Iron
Ore and Coal as explained.
Compliance with Developing Economies Environmental Policies
Compliance with environmental policies set by developing nations especially China
highly impacts the demand for Rio Tinto’s products such as the iron ore. For instance,

RIO TINTO COMPANY ANALYSIS 5
the Chinese environmental policies require a supply of iron ore which is of high quality
as part of environmental protection. The implementation of this policy has led to the
closure of some furnaces in China which are inefficient and unable to comply with the
set iron ore standards. Rio Tinto has been able to increase its demand for iron ore as it
complies with the set environmental policies as it is among the few miners who supply
high-quality iron ore to China. The demand for Rio Tinto’s iron ore increased by 3.2
percent in 2018 to 281 million tons from 272 million tons in 2017.
Developing Economies Demand
The demand from developing economies for Australian minerals highly determines the
demand for Rio Tinto’s products such as iron ore and coal. For instance, more iron ore
which is of high grade as part of environmental protection policy is highly demanded by
developing economies such as China and India. This has increased the demand for Rio
Tinto’s iron ore along with other big miners such as BHP Billiton and Vale. Also, coal
demand has risen in China and India due to a rise in coal power generation. The Indian
demand for coal is anticipated to rise to 708mtce by 2023 as the nation’s infrastructure
is developing as its economy expands. This is likely to increase the demand for Rio
Tinto’s coal and hence the demands from developing economies highly determine the
demand for Rio Tinto’s products.
Supply Determinants
Supply reflects the number of commodities that sellers can willingly offer for sale in the
market at a given price level (Gadde, Håkansson and Persson 2010, p.36). Various
factors affect the supply for Rio Tinto’s supply of products especially Iron ore and coal.
Prices in the Global Market
Rio Tinto is an international company which trades in six continents and hence mineral’s
global prices affect its supply. Favorable global prices encourage the supply for Rio
Tinto’s products while unfavorable prices lead to a decline in supply for the company’s
products as the company cuts its supply to avoid losses which may result from low
global prices.
Freighting Costs
These refer to costs involved with the transportation of products. Rio Tinto operates in
various continents. The cost of transportation in the continents determines the supply
for the company’s products. A rise in transportation costs which may be as a result of a
rise in oil prices will lead to a decline in supply for Rio Tinto products as final prices are
likely to be higher making the company less profitable. Favorable transportation costs
will lead to increased supply as final goods and services for Rio Tinto are likely to be
sold at favorable low prices and this will increase the company’s sales making the
company more profitable.
Demand elasticity for Rio Tinto Products
Demand elasticity measures the responsiveness of demand for a given product towards
its price alteration (Desmet and Parente 2010, p.319). Rio Tinto demand elasticity for its

RIO TINTO COMPANY ANALYSIS 6
products especially Iron ore and coal has been discussed. The products offered by Rio
Tinto have inelastic demand. This is because the Rio Tinto products operate in an
oligopoly market structure. Some of the major companies in the iron ore and coal
market are the Rio Tinto, BHP Billiton, and Vale. The companies dependent on each for
crucial decisions and a decision by one company leads to an immediate reaction from
the other companies to avoid losses.
Factors affecting Demand Elasticity for Rio Tinto’s Products
The Necessity Extent for Rio Tinto’s Products
Most mined minerals are necessary for the production of crucial products. For instance,
Rio Tinto’s iron ore and coal are necessary for steel production. It, therefore, makes it
compulsory for their continued use especially due to their high quality. This makes their
demand inelastic.
Close Substitutes
Availability of close substitutes makes demand elastic (Conejo, Morales and Baringo
2010, p.236). Most of Rio Tinto’s products especially iron ore and coal, have no close
substitutes and are of high quality. This makes their demand inelastic or rather less
elastic as no available substitutes in the market.
A recent Event Analysis
The Rig Control System Launch (RCS 5)
During the year 2019 April, a company by the name Epiroc Drilling Solutions launched
an autonomous updated drilling system called RCS 5 “(Australian Mining, 2019)”. The
system drills Pit Viper blasthole rigs and is the fifth generation. This will lead to the
automation of Australian mining companies’ activities. The system is equipped with
various amazing features such as an integrated camera which shows advanced
awareness and communication between machines among others “( Australian Mining,
2018)”. The merits of the system have already been witnessed for BHP Billiton’s
automation of 18 BHP’s blasthole rigs Pit Viper by Epiroc Company which led to
increased productivity during the year 2016.
Likely Impact on Supply
RCS 5 is anticipated to improve the productivity of Australian mining companies and this
will increase supply. For instance, the automation of 18 BHP’s blasthole rigs Pit Viper
led to an increase in the company’s productivity from 9.8 percent to 22 percent of the
meters drilled per shift.
Likely Impact on Market Quantity and Price
RCS 5 is expected to improve productivity and hence the market quantity will increase
(Morton 2018, p.40). It is also expected to improve efficiency in production and hence
lower production costs. This will lower the market price as explained by use of the
diagram below.

RIO TINTO COMPANY ANALYSIS 7
The improvement in productivity will increase the Australian mining industry aggregate
supply and hence shift the aggregate supply curve towards the right direction from AS0
to AS1. This will increase the market quantity from Q0 to Q1 whilst the market price, on
the other hand, will decrease from P0 to P1 as illustrated in the graph above.
Conclusion
The success of every organization is determined by its management’s to plan viable
goals for the organization’s operations. Businesses need to plan for future operations by
considering their past and current performance and their industry key indicators at large.
An analysis of Rio Tinto and the Australian mining industry has been done in this report.
Considering the analyzed indicators such as employment level and growth rate, Rio
Tinto and the Australian mining industry have contributed significantly towards the
Australian economic growth through their excellent performance and better results are
anticipated in the future.

RIO TINTO COMPANY ANALYSIS 8
References
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Australian Mining (2019). Epiroc releases updated drilling system for autonomous
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RIO TINTO COMPANY ANALYSIS 9
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