Rio Tinto ( RIO)
Diana Lock, Morgans Financial
AT first glance, a reasonable operational result from Rio Tinto although it did cut 2015 guidance for total iron ore production to 340mt ( from approx 350mt), now indicating it would not catch up on its shipments following a weather- impacted first quarter.
Iron ore production increased 7 per cent in the June quarter, rebounding from a weather impacted Q1, to come in at 79.7mt ( 100 per cent basis) versus our estimate of 81mt ( we were at the high end of market estimates). Copper production, while down - 7 per cent versus Q1, came in above our estimates at 134kt ( Morgans 125kt). Aluminium and bauxite output were largely unchanged versus Q1 at 818kt and 10,695kt respectively ( Morgans 815kt and 10,700kt). We expect RIO to continue ramping up iron ore production from its Pilbara operations following the completion of its 360mt expansion project.
Increased output is being supported by brownfield expansion of its West Angelas, Nammuldi and Brockman mines ( adding 40mtpa at a capital cost of $ 9/ t).
Although downgrading iron ore guidance, RIO has left its 2015 guidance for copper, aluminium and bauxite unchanged.
We see RIO as a well- run business with strong operational capabilities, however, in our view RIO’s investment appeal has been eroded by its major exposure to iron ore and aluminium, where we do not anticipate a nearterm recovery. As a result we maintain our Hold recommendation.