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How Rio Tinto plc Could Help You Retire Early

The mining boom that has been witnessed in the early part of the 21st Century does not seem to be over just yet.

Indeed, companies such as Rio Tinto (LSE: RIO) (NYSE: RIO.US) appear to have a bright future ahead of them, with earnings forecasts being relatively positive for 2014.

Of course, China does seem to be moving towards the development of a consumer economy, as it will seemingly spend less than it has done in the past on infrastructure development and more on ‘softer’ development, as it attempts to build Chinese companies and brands that can compete with America.

However, infrastructure spending is still likely to remain high in China, with demand for metals such as iron ore (in which Rio Tinto has a large foothold) remaining significant.

Then there is the rest of the developing world. Places such as India and Brazil will need to develop improved infrastructure in future years, with companies such as Rio Tinto directly benefitting from such growth.

Indeed, as mentioned, 2014 looks set to be a much improved year for Rio Tinto, with the market forecasting earnings per share (EPS) growth of 15%. This is hugely impressive and shows that the company remains an out-and-out growth stock.

Furthermore, Rio Tinto currently trades on a price to earnings (P/E) ratio of just 10.6, meaning the price to earnings growth (PEG) ratio is only 0.71. This is considerably below the PEG ‘sweet spot’ of 1.0 and suggests that Rio Tinto continues to offer significant upside potential from current price levels.

In addition, Rio Tinto continues to be in a very favourable position when it comes to the ownership of mines. It controls a number of highly lucrative mines, in terms of their being relatively accessible and in countries that are more politically stable than regions where many of its competitors must operate.

This means that Rio Tinto has an extremely low cost curve and is therefore able to command higher margins than many competitors, especially in iron ore. The company can make life very difficult in the long run for its rivals, as it squeezes their margins in favour of increased market share.

So, a favourable outlook for the sector, control over some of the most appealing mines in the world and highly attractive growth prospects mean that Rio Tinto could make retirement come along sooner than you thought.

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> Peter owns shares in Rio Tinto.