Iron ore recently broke through the psychologically significant USD100 per metric ton threshold for the first time since September 2012 and has continued sliding, along with analysts’ forecasts for its eventual bottom.

So far this year the price of iron ore is down more than 30 percent, taking it well into bear market territory. The benchmark iron ore price, measured out of the Tiajin port in China, slumped 2.1 percent overnight to USD91.50 on June 11, 2014, a 21-month low.

Chinese and global steel prices have softened, and iron ore, a key steel input, has sold off in sympathy. Meanwhile, global supply of iron ore is ramping up as diversified and single-metal miners add to supply.

Supply from low-cost miners, including AE Portfolio Aggressive Holding Rio Tinto Ltd (ASX: RIO, NYSE: RIO), is still rising quickly. Rio Tinto and BHP Billiton Ltd (ASX: BHP, NYSE: BHP) have both guided to record iron ore output.

Despite the recent downward trend, the longer-term prognosis for iron ore prices is positive.

A price around current levels will eventually see higher-cost producers suspend production because they simply can’t make money.

And Rio Tinto sits at the lowest end of the global iron ore production cost curve and is well-positioned to remain profitable with prices as low as USD50 to USD60 per metric ton.

A lot of bad news is priced into iron ore at these levels.

But reports that China’s cabinet is planning more big infrastructure projects, including highways, train networks and oil and gas distribution and storage facilities, as part of its efforts to keep the economy growing at a stable rate could form the beginnings of a floor under the iron ore price.

China’s finance ministry said fiscal spending had surged nearly 25 percent in May from a year earlier to CNY1.3 trillion (USD208.75 billion), accelerating from a 9.6 percent rise in the first four months of the year and highlighting government efforts to energize the slowing economy

Stimulus measures taken so far by Beijing include speeding up the construction of railway projects and public housing as well as orders to local governments to fast-forward their fiscal spending to prime the economy for growth.

Central government spending rose 15.8 percent in May from a year earlier, while local government expenditure soared 26.9 percent.

And the Peoples Bank of China announced on June 9, 2014, that it would lower the reserve requirement ratio–the level of reserves banks must hold–for those banks that have sizeable loans to the farming sector and small and medium-sized firms. This is the second reduction following a cut in April aimed at rural banks.

Rio Tinto, where iron ore accounted for 85 percent of operating earnings in 2013, is down about 13 percent in total return terms in 2014.

It’s trading at a sharp discount at these levels and represents solid  value, realistic prospects for long-term growth and the promise of a more aggressive capital program, including dividends and share buybacks, as it exits a period of high capital expenditure and trims its operational focus following years of aggressive expansion during the early 21st century global resource boom.

Management recently revealed that expansion at the Nammuldi iron ore mine and Cape Lambert port is now two months ahead of schedule, with the company ramping up production at its West Australian iron ore sites as a result.

The expansion in the Pilbara region was announced in 2012; USD2 billion was allocated to the Nammuldi iron ore mine to extend its life of the mine, while USD1.1 billion was earmarked to increase the size of the company’s Cape Lambert port and rail facilities.

The second phase of expansion–which will increase iron ore production to 360 million tons a year by the end of 2015–is now the focus for the company.

The added capacity will allow Rio Tinto to move iron through the region at even lower cost.

Rio Tinto has also said that there will likely be some run-rate variability in coming months as it completes second expansion and integrates its “world first” automated heavy-haul rail system into the business.

Asset sales and cost controls continue to be significant aspects of Rio Tinto’s realigned strategy under CEO Tom Walsh, who replaced Tom Albanese on Jan. 17, 2013, after company writedowns of USD22 billion in two years

At a recent mining conference in Miami, Mr. Walsh noted that the use of automated technology was already helping the company keep costs down.

Not only do the automated trucks mean that fewer are required at the new mines. But “innovative sourcing and procurement have also delivered considerable savings, with much of the construction equipment coming from emerging supplier powerhouses such as China, Indonesia and Thailand.”

In early June management announced the completion of the sale of its 50.1 percent interest in the Clermont  thermal coal mine to GS Coal Pty Ltd for USD1.015 billion, part of the company’s broader strategy to operate in an environment of falling commodity prices.

The company is focused on cutting costs, as well as adopting a disciplined approach to capital allocation. This has involved selling off non-core assets and deploying capital in projects that will generate better returns. These efforts complement Rio’s plans to significantly boost its iron ore production. The company is expecting to lower unit costs through reaping the benefits of economies of scale – taking advantage of its low-cost iron ore deposits.

Rio Tinto made significant headway in its cost saving efforts in 2013. The company reported USD2.3 billion in savings in operating cash costs over the previous year. These savings reflect improvements in unit cost of goods sold for operating assets and improvements in operating costs for central functions.

The company is targeting further reductions to its operating cash costs, targeting savings of around USD3 billion in 2014, as compared to operating cash costs in 2012.
Rio Tinto also reduced exploration and evaluation spending by about USD1 billion in 2013 compared to 2012.

The company is focusing its exploration and evaluation efforts on projects that can potentially deliver the best value in the medium term while reducing spending on longer-dated options.

Rio Tinto has also sold a number of non-core assets. The recent sale of its Clermont stake represents the culmination of USD3.5 billion in divestments announced in 2013. The company is deploying capital into projects that offer better returns.

For example, along with the announcement to divest its stake in the Clermont mine, Rio Tinto also announced the completion of the USD2 billion Kestrel mine extension project in 2013. This extension will add 20 years to the life of the Kestrel coal mine.

The company’s focus on projects that offer the best returns has also resulted in a substantial reduction in CAPEX. Rio reduced its CAPEX by 26 percent to $12.9 billion in 2013, compared to USD17.6 billion in 2012. Management is targeting further reductions in CAPEX to around USD11 billion in 2014 and to USD8 billion in 2015, while delivering steady growth.

During the first quarter of 2014 Rio Tinto established new records for its Pilbara iron ore business for production, shipments and rail volumes, and the company is well on track to reach nameplate capacity of 290 million metric tons per annum by the end of the first half.

Mined copper production benefited from higher ore grades at Kennecott Utah Copper and production ramp up at Oyu Tolgoi, and Rio also had a record first quarter for bauxite, primarily driven by higher production at Weipa

For iron ore, 2014 production guidance was maintained at approximately 295 million metric tons from its global operations in Australia and Canada, subject to weather constraints.

Rio Tinto’s share of mined and refined copper production is expected to be approximately 570,000 metric tons and 260,000 metric tons, respectively. Mined copper guidance is approximately 60,000 metric ton lower than actual production in 2013, due primarily to asset sales.

Bauxite, alumina and aluminium production is expected to be 41 million metric, 8 million metric tons and 3.4 million metric tons, respectively.

Rio Tinto’s expected share of Australian hard coking coal production has decreased marginally to 8.2 million metric tons from 8.5 million, with a consequent expected increase in thermal coal production to 16.7 million metric tons from 16.5 million, the change is driven by the prioritization of thermal coal from a processing plant by-product stream that delivers increased margins in the current price environment.

The challenging pricing environment for Rio Tinto’s major commodities, including iron ore, will continue in the near term. But the company will continue to reduce costs and focus on its core assets.

Disciplined capital allocation will continue to be the mantra for Rio Tinto. In addition, the company will look to reap the benefits of economies of scale with high volumes from its core assets.

Rio Tinto is a buy under USD65 on the Australian Securities Exchange (ASX) using the symbol RIO.

Rio Tinto is dual-listed on the London Stock Exchange. Its New York Stock Exchange (NYSE) listing is an American Depositary Receipt (ADR) that represents one share of the company’s London listing. The London listing and the New York listing both represent the same underlying business as the Australia listing.

Rio’s NYSE-listed ADR–which also trades under the symbol RIO–is a buy under USD62.

Rio Tinto closed at AUD59.40 on the ASX on June 11, 2014, USD53.08 on the NYSE.

Rio Tinto’s financial year corresponds with the calendar year, Jan. 1 to Dec. 31. The company reports full financial and operating results twice a year; it typically posts first-half results in mid-August, with full-year numbers out in mid-February.

Interim dividends are typically declared in August, around the time of the announcement of half-year earnings, with payment made in September. Final dividends are typically declared in February, just ahead of the announcement of full-year results, with payment made in April.

Dividends paid by Rio Tinto are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January 2013 dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock, 16 rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology. There are three “hold” and one “sell” ratings on the stock at present. The “best consensus” 12-month target price among the 15 analysts that provide such a number is AUD74.76, with a high of AUD86.30 and a low of AUD65.

Including a current annualized dividend rate of AUD2.13 per share, the 12-month total return based on Rio Tinto’s June 11 closing price on the ASX of 59.40 and analysts’ consensus price target is 29.4 percent.