Why has the Rio Tinto share price dropped today?

Posted: 21 January 2022 12:10 pm
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Shares in Rio Tinto have climbed more than 15% in the last month but reversed today.

Shares in mining giant Rio Tinto (ASX: RIO) are among the worst performers on the ASX boards on Friday amid broader weakness in the stock market.

At the time of writing, Rio shares were down 3% at $110.

What is weighing on the Rio stock price?

While the broader sell-down on the ASX is partly to blame, shares in Rio Tinto are underperforming the market after news that the Serbian government has blocked plans for the company's Jadar lithium mine proposal in that country.

Rio's plans to develop the US$2.4 billion project in Serbia – in what would have been Europe's biggest lithium mine – have attracted widespread local opposition with environmentalists saying it would pollute land and water.

The shelving of the plan represents a significant setback to the Anglo-Australian miner's push into the global lithium market, which has been championed by chief executive Jakob Stausholm despite investor concerns about a phase of capital-intensive greenfield development in battery minerals.

Rio Tinto said it was "extremely concerned" by Serbia's decision and was reviewing the legal basis for it.

Stausholm has previously said Rio would continue to pump growth capital into commodities that supported decarbonisation of global energy networks.

Sector focus

The global miner still retains significant interest in the lithium space after announcing last month that it would buy the undeveloped Rincon lithium brine project in Argentina for US$825 million.

The company had hoped the Jadar project would catapult it to among the world's largest producers of lithium at a time of growing demand for electric vehicles globally. Analysts had previously estimated that lithium could account for 5% of its overall revenue by 2030, but that would now be in doubt.

This also comes at a time when Rio Tinto's cash cow iron ore business has seen prices retreat over the last year, prompting downgrades from analysts.

The company last week reported lower than expected output in 2021 after challenging operating conditions and forecast only a small improvement for the current year.

The cloudy outlook for iron ore amid slowing economic conditions in key consumer China have also had an impact on the wider sector. On Friday, shares in key rivals BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG) were down 2.9% and 1.8% respectively.

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