Questor share tip: Rio Tinto is a buy amid record production The lower output was caused by a huge landslide at the Bingham Canyon mine in Utah, the largest man-made excavation in the world. However, its Oyu Tolgoi copper-gold mine in Mongolia made its first shipment of copper concentrate in the quarter. However, prices are the problem. In February, spot iron ore prices stood at about $160 a tonne. Now they are more in the region of $127, having been as low as $110 in May. This is significant for Rio. A 10pc move in the price has a $1.6bn impact on net earnings - negative or positive. The outlook is for the price to weaken further. However, Rio has advantages over other producers. Rio's operations in Pilbara are some of the lowest cost in the world. It costs the group about $50 a tonne to mine from the Pilbara in Western Australia, which means the business remains extremely profitable at the current price. Also, Rio has the advantage that these operations are physically closer to China than other major players such as Vale's mines in South America. Copper prices have also been falling as the market is now expected to move into surplus after years of being in deficit. However, the price has already tumbled over the past few months, which means that while it is unlikely to charge ahead, further steep falls are not expected just now. Miners have been hit by a perfect storm of weaker Chinese growth and the resurgent US dollar, which usually makes commodity prices fall. This has happened at a time when the chief executives of the largest mining companies have changed, with their predecessors being forced out after a series of asset write-downs following a spending spree that was particularly mistimed. This has prompted a number of commentators to speculate that the China-fuelled mining "supercycle" is over. The truth is that it probably isn't. Indeed, HSBC summed up the situation nicely yesterday. "The recent market volatility has led to another revival of the "death of the supercycle" theme amongst commentators. It is our view that it has neither died, nor remained in full swing - but in reality has evolved, and has been evolving for some time," the bank's analyst said. Perhaps the largest misconception we see at the moment is confusing the demand cycle with the [capital expenditure] cycle - the former is moderating, the latter is clearly at an end. This is a positive for equity investors. So, record production and lower spending are likely to lead to the group seeing a stronger free cash flow over the medium term. This raises the prospect of cash returns to shareholders - something investors in the sector have wanted for many years. Rio shares are trading on a 2013 earnings multiple of 8.5, falling to 7.2, and yielding a solid 4.2pc, rising to 4.6pc. Rio shares are a buy.