Rio Tinto released its December-quarter CY18 production report and we noted the following key points:
- Pilbara iron ore shipments ran at a rate of 347Mt per annum in the quarter, in line with our forecast, with CY18 output at 338Mt, up 2% on CY17.
- The CY18 achieved price of US$57.6/t was a touch lower than our estimate of US$59.0/t.
- The AutoHaul (automated train) program is now functional and guidance for Pilbara system capacity remains 360Mtpa by the end of CY19.
- Copper output was strong at 178,000t, 21% higher than our estimate due to 26,000t coming from Grasberg in Indonesia, which we already accounted for in the US$3.5bn sale proceeds.
- Production across the other divisions was broadly in line with our forecasts, although bauxite shipments at non-operated assets were weak.
CY19 guidance was mixed, with Pilbara iron ore production at 338–350Mt versus our previous 352Mt forecast, which we have now reduced to 349Mt. Copper guidance of 0.55–0.60Mt was lower than our estimate, with the difference at Kennecott Utah Copper, while Ok Tedi and Escondida were in line. The highlight was bauxite sales of 56–59Mt versus 50Mt in CY18, highlighting the positive impact from the Amrun project.
We expect Rio Tinto to finish CY18 with a small net cash position, setting the company up well to deliver US$4–5bn in capital management with the February result. The stock remains our preferred diversified miner based on its on attractive valuation and shareholder return potential. We maintain our Accumulate recommendation, although we have trimmed our target price to $90.00 from $91.00.