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Rio Tinto plc (RIO): Two Bad Acquisitions With a Huge Writedown

Compared to its peers, including BHP Billiton Limited (ADR) (NYSE:BHP) and Vale SA (ADR) (NYSE:VALE), Rio Tinto seemed to be the most expensive mining giant. BHP, with $76.87 per share, is worth $205.5 billion in the market. It is valued at only 13.33x trailing P/E. Vale’s share price is currently $20.02 per share, with a total market capitalization of $103.17 billion. The market is valuing Vale at 8.8x P/E. Currently, BHP and Rio Tinto are paying the same dividend yield of 2.9%, whereas Vale is paying 1.6%. Among the three, Rio Tinto had the highest amount of goodwill and intangible assets at $16.3 billion on its balance sheet. BHP and Vale were much more conservative with relatively smaller goodwill and intangible asset amounts. BHP had more than $1.6 billion in intangible assets and no goodwill, while Vale had nearly $3 billion in goodwill and $1 billion in intangible assets. Thus, the likelihood of write-down for both BHP and Vale were much smaller than for Rio Tinto.

My Foolish Take

Investors should always remember two things. First, the values of mineral companies are moving closely with the commodity market prices. Second, the giant and expensive acquisition would turn sour for the company’s market price and its shareholders in the long run. Be careful when the big becomes bigger but not more efficient.

The article Two Bad Acquisitions With a Huge Writedown originally appeared on and is written by Anh HOANG.

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