Rio Tinto ( RIO)

Diana Lock, Mor­gans Fi­nan­cial

Townsville Bulletin - - NEWS -

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.

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