Rio Tinto Update

Rio Tinto have a retained Outperform recommendation. Shares in Rio Tinto (RIO) have crept higher in trade today to extend on yesterday’s ~2.7 percent rally after Tuesday’s news that it has committed US$1.8bn to develop 2.0 million tonnes per annum (mtpa) of alumina refining capacity. Australian stockmarket analysts Macquarie Research Equities have reiterated their outperform recommendation for RIO and believes yesterday's announcement highlights the latent capacity of Rio Tinto's portfolio. Biting the bullet. The analysts are supportive of Rio Tinto's commitment to invest significant capital at its newest alumina business. The 2.0mtpa expansion of the Yarwun facility (with first production from 2010), and the move to cogeneration power, is set to entrench the facility in the first quartile of the cost curve and further leverage Rio Tinto's strategic bauxite holding at Weipa. A competitive option. While the capital intensity of the phase II project (at US$900/annual tonne) has clearly increased from that of the initial 1.4mtpa development (US$536/annual tonne) it must be remembered that Rio Tinto wisely and opportunistically managed to hedge the original budget at the depressed 50c A$:US$ rate. Moreover, The analysts believe the level of capital intensity for phase II actually compares quite favourably with other projects being developed globally where the cost has exceeded US$1,000/annual tonne, while the outlook for aluminium pricing has similarly improved in response to those same cost pressures and constrained stock levels. A robust project. Notwithstanding the inflationary trend for project development, their analysis suggests the US$1.8bn Yarwun expansion will deliver a robust internal rate of return of 12.6% and net present value of US$855m or US67cps. While MRE are clearly comfortable with Rio Tinto solidifying its long ‘upstream’ position (ie bauxite and alumina), MRE certainly don’t believe the decision to expand the Yarwun facility should be seen as a prohibitive step for future investments in smelting capacity. Moreover, The analysts would expect Rio Tinto to continue to investigate opportunities to exploit stranded power while M&A will surely be considered where appropriate. The expansion decision at Yarwun yet again highlights the latent capacity that exists in the Rio Tinto portfolio. With that in mind, The analysts remain attracted to the Rio Tinto's strong cash-generating capacity, bulging balance sheet, ability to implement capital management initiatives and extensive growth pipeline.

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!