View from the Top

Ord Minnett recently attended the sell-side analyst forum hosted by Rio Tinto (RIO) CEO Jean-Sebastien Jacques and we highlight the key points from the discussions. We maintain our Hold recommendation on Rio Tinto and our target price of $94.00.


  • Iron ore output – The CEO was firm that he was not planning to ramp up iron ore volumes. Key risks cited were a potential rise in Chinese domestic iron ore production volumes. The ‘value over volume’ line was also rolled out, with the CEO stating that US$10 on the price equates to circa US$2bn of cash flow, so Rio Tinto is keen to protect the underlying business. Part of the issue is protecting the Pilbara Blend specifications, i.e. how do you ‘flex’ the system without downgrading the Pilbara Blend. If the Brazil regulator forces further dam shutdowns, and it was likely to last on a five-year time frame, then that could change the outlook for Rio Tinto.


  • AutoHaul – More than 90% of trains are running without a driver, but there are still improvements that need to be made. The ramp-up has exceeded expectations. AutoHaul is the key link to get the system to 360Mtpa by the end of 2019.


  • Oyu Tolgoi underground delay – Design changes to the giant copper-gold project are related to access, and where they initiate the cave. The key concern is to make sure the cave doesn’t cave too quickly, so as to protect the infrastructure. There is no need to redesign major critical infrastructure.


  • WINU project – The copper, gold and silver discovery in Western Australia is still open in all directions. Jacques expects there will be a mine, but it may not be a Rio Tinto mine. The outcome will probably be known by the end of CY19. Even if it is a tier-2 copper mine, Rio Tinto would probably keep it given the location and the fact there have been very few tier-1 copper discoveries recently.


  • Bauxite and aluminium – Rio Tinto has bauxite growth options, but does not see the market as able to accommodate the new supply. In aluminium, there are options to grow in Canada, but market conditions are not right to trigger approval of these options. One of the key considerations is also lowering the capital intensity of building an aluminium smelter.

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