Rio Tinto Upgrade

Submitted by Craig Strzelecki on 22 May, 2007 - 19:45

Rio Tinto have a reiterated Outperform recommendation from sharemarket analyst Macquarie Research Equities. Yesterday, key management personnel from Rio Tinto (RIO) hosted a uranium seminar to discuss the outlook for the market and the vast array of growth options that exist in the portfolio. The analysts continue to view RIO as a relatively inexpensive way to get exposure to an array of world-class assets, including uranium, leveraged to a once-in-a-generation commodities boom. A timely reminder: The seminar clearly illustrated Rio Tinto's increasingly positive view of the uranium market. Moreover, the decision to touch on the broader growth attributes of the company highlighted an increasing trend for Rio Tinto's historically conservative management team to educate the market on the deep pipeline of growth options in the portfolio (and their underlying value). The analysts are similarly optimistic: also bullish on the outlook for short-term uranium pricing and expect a peak of US$150/lb later this year, before a return to a long-term incentive price of US$45/lb in 2012. That said, they caution that Rio Tinto continues to deliver into legacy contracts which will mitigate pricing leverage over the remainder of this decade. Get set for the growth: Management highlighted the array of growth options that exist at Ranger/Jabiluka, Rossing, Sweetwater and Kintyre. Thankfully, the analyst's base case and high case production forecasts fit comfortably in the Rio Tinto guidance range (which predicts growth towards 15–20kt U3O8pa into the next decade), in turn ensuring that their forecasts remain unchanged following the seminar. That said, it would be remiss not to mention that the anaysts' level of confidence regarding the deliverability of that growth has grown given strong exploration results and evidence of improving community relations. An increasingly important contributor: In an attempt to explain why Rio Tinto is going to such lengths to ensure the market fully understands the increasing relevance of its uranium business, they note that their forecasts suggest uranium will contribute over 10% (or +US$550m) of group operating earnings from 2011. When combined with the incremental upside that Sweetwater and Kintyre may deliver, it is increasingly apparent that Rio Tinto is well placed to drive its forwards earnings outlook. This has clear ramifications for its underlying market rating.

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!

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