February 8

Rio Tinto (RIO) : King of the Pilbara

Rio Tinto is engaged in minerals and metals exploration, development, production, and processing. The company’s portfolio of assets is condensed into four product groups, namely iron ore, aluminium, copper, and minerals. Rio Tinto’s 2023 December-quarter sales were in line with our expectations. Its Pilbara iron ore operations were the main driver of earnings, with production up 4% on a year ago. The company is on track to meet our forecast for 2023 cash costs of around US$22 per metric ton. We forecast similar Pilbara iron ore sales and unit cash costs in 2024. Rio’s Pilbara operations account for roughly 80% of our forecast 2023 operating earnings. We forecast 2023 dividends of US$4.30, or around $6.40, per share. We increased our fair value estimate for Rio Tinto by 5% to $116 per share post the quarterly result, driven by higher iron ore and copper prices that were partially offset by a stronger AUD/USD exchange rate.

We raise our assumed average iron ore price from 2024 to 2026 to roughly US$120 per metric ton based on the futures curve, up from about US$95. Copper sales of 740,000 metric tons were similar to 2022, with the company’s increased ownership of the Oyu Tolgoi mine in Mongolia offsetting lower sales from its Kennecott mine in Utah. We forecast copper sales of roughly 850,000 metric tons in 2024, driven by higher production at Oyu Tolgoi as its underground operations ramp up along with a recovery in production at its Utah operations after recent maintenance.


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