‘The insatiable demand for iron ore,’ makes Rio Tinto an attractive proposition.

ALEC HOGG: Adam Myers joins us. He's with Investec. We are talking Rio Tinto. This is one of the big mining groups, which has been notable by its absence on the JSE's list, Adam. But because of the iDx programme you can actually invest in Rios now.

ADAM MYERS: Hi, Alec, yes, that's correct. Rio is primarily listed in Australia, although it does have listings in London and the US as well.

ALEC HOGG: Going back to June this year, Rio and BHP Billiton announced that they would be putting together their Western Australian iron ore operations. Doesn't sound like a huge deal until you know that they are going to be saving $10bn in operating costs together. How did they manage to do that?

ADAM MYERS: Well, apparently it's a $116bn merger that they are putting together, and they tell that by combining adjacent mines into single operations by reducing costs by shorter rail haul, more efficient allocations of port capacity, and by blending opportunities which will maximise product recovery, they will enhance operating efficiencies. I read an interesting article the other day about this JV, and it said don't think of them as mining companies, think of them as logistical companies that transport mountains to the sea. So it does get a great deal of perspective when you think about it in that way.

ALEC HOGG: Ja, and I guess when they are separate they have to have their own railways, their own trucks going down to the ports in WA.

ADAM MYERS: 100%. Because they've got a 50/50 JV on all assets and liabilities in the iron-ore sector, basically when supplying any customer they can send from the nearest mine.

ALEC HOGG: That's well and good, but the shares have run and they do appear to be quite expensive relative to where they have come from. Why do you think it's a good value proposition still, Rio Tinto?

ADAM MYERS: Well, I guess it comes back to one's belief in the commodity supercycle. If you look where Rio has come from, they were 123 bucks before the global financial crisis. So although they have had a 283% rally, they are still pretty far from their highs that they've achieved. And there is still insatiable demand for iron ore, which does make them an attractive proposition.

ALEC HOGG: Adam Myers is with Investec.

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