Rio Tinto (RIO) – No Entrée yet

Rio Tinto Group mines and processes mineral resources worldwide, primarily iron ore, aluminium, and copper, but also other minerals, including lithium. The company, which is the largest iron ore miner in Australia and behind only Brazil’s Vale globally, was founded in 1873 and is headquartered in London.

Rio Tinto has maintained guidance for copper output from the Oyu Tolgoi project in Mongolia despite licencing issues leading it to suspend development of a section the giant copper and gold mine and reconsider its timeline for development. The licencing issues relate to ongoing delays in the transfer of licences from Entrée Resources, its Canadian joint venture partner in some of the Oyu Tolgoi project areas. Entrée, Rio Tinto and the Mongolian government are working on completing the licence transfers so the JV areas can be mined, but work on the Hugo North Lift Panel 1 (P1) section has been paused for the moment.

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Instead, Rio Tinto will accelerate development of the Panel2 South (PS2) section to compensate for lost copper production from P1. This can occur because PS2 copper grades are much like those at P1, although we understand gold grades at PS2 are lower. The Oyu Tolgoi project is 66% owned by Rio Tinto with the Mongolian government owning the remainder. In Ord Minnet’s view, the changes to the development plan will be limited in the broader scheme of project, given similar ore grades and only minor capital expenditure so far given work at P1 had only just started.

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This leads us to make no changes to our estimates or valuations, although the sometimes fractious relationship with the Mongolian government over taxation, capital contributions and the licence delays will need to be monitored. We maintain our Buy recommendation on Rio Tinto and a target price of $126.00."

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