Rio Tinto (RIO) Shares Update

Submitted by Craig Strzelecki on 18 January, 2007 - 06:05

Rio Tinto (RIO) have a maintained Buy Shares recommendation from stock analyst Citigroup Investment Research (CIR). The analyst notes that 4Q06 production was mixed, but slightly weaker than expected, with maintenance-affected iron ore and copper cathode production offsetting strong US thermal coal volumes and titanium feedstock demand. Sales/shipments were generally better than production, especially in iron ore. CIR's 2006 pre-exceptional NPAT estimate has been downgraded by 4.6% to US$7.75b, reported US$7.82b, driven by a combination of 4Q06 production, negative US$120m provisional pricing impact from copper price fall, higher exploration charge and profit downgrade from subsidiary Coal & Allied. CIR have upgraded their 2007 estimate by 1% to US$8.6b and 2008 by 3% to A$7.6b driven by the better than expected 9.5% increase in iron ore prices. CIR have also adopted the latest CitiFX forecasts that have resulted in minor changes to their estimates. There is some risk to CIR’s estimates from copper as they assume a 2007 price of US$2.95/lb. While the loveless market sentiment toward the diversifieds from 2006 has rolled on into 2007, CIR remain positive on RIO stocks. Outside of the discount to NPV, cheap P/E and capital management, the key positive catalyst expected is a 2H07 copper recovery to >US$3/lb driven by US housing recovery and Chinese restocking. Meanwhile, shares analyst UBS rates Rio Tinto with a Buy 2 shares recommendation and a share price target of $95. Rio Tinto have released their fourth quarter production results. UBS comments that: "Overall, production was in line with expectations, with good results especially out of Grasberg copper, and US coal, both of which performed ahead of expectations. On the negative side, Bingham Canyon was slightly below our expectations largely due to the scheduled maintenance shutdown which spilled into Q4; however, this was well flagged in the prior quarter and at the site trip in September. At this stage, we have not made any changes to our estimates based on the production report and ahead of the financial results on Feb 1. However, there remain risks to the earnings outlook from provisional pricing in copper and reduced earnings from Rio Tinto's 75% subsidiary, Coal & Allied, following their downgrade to full year guidance. We note that the stock continues to trade at multiples which suggest peak cycle earnings. We believe that commodity prices could continue to perform strongly, underpinned by good demand growth in China. On this basis, we believe Rio Tinto should trade at higher than its current 8-9x forward earnings multiples."

Rio Tinto Limited is listed on the Australian Stock Exchange (ASX) under stock code RIO. You can view their investor website here. The company was listed on the ASX on 1 January, 1970. Leigh Clifford is the CEO and Paul Skinner is the Chairman for this mining resources company. Rio Tinto is a leading international mining group, combining Rio Tinto plc, a London listed public company headquartered in the UK, and Rio Tinto Limited, which is listed on the Australian Stock Exchange, with executive offices in Melbourne. The two companies are joined in a "dual listed companies" (DLC) structure as a single economic entity, called the Rio Tinto Group. The Group finds, mines and processes the earth's mineral resources - metals and minerals essential for making thousands of everyday products that meet society's needs and contribute to improved living standards. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade RIO. Check your charts and good luck with your share trading!