Analysts Downgrade Rio Tinto

While commodity costs are falling, Morningstar analysts have re-evaluated the likely decline and believe they were being overly optimistic - resulting in a reduction in the fair value

Mark Taylor 22 April, 2015 | 9:32AM
Facebook Twitter LinkedIn

It was a soft first quarter from Rio Tinto (RIO), but an 8% reduction in our fair value estimate reflects an increase in assumed operating costs across all segments and a reduced copper production outlook. While costs are falling, we have re-evaluated the likely decline and believe we were being overly optimistic. We have tempered the degree to which we expect labour cost pressures to abate in sympathy with weaker commodity prices generally.

We've reined in our forecast copper volumes to tally with guidance for 500,000 to 535,000 tonnes mined, sharply lower than 2014's 615,000 tonnes mined. Lower grades at Kennecott reflecting a focus on de-watering is a key detractor.

Rio Tinto continues its efficiency drive, but cost cuts do not improve the relative competitive position as the whole industry curve is moving down, hence we maintain our narrow moat rating. It's founded on low-cost supply thanks to high-quality geological deposits and economies of scale. Fair value uncertainty remains high in recognition of outsized exposure to iron ore.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Rio Tinto PLC4,578.50 GBP0.00Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.