Rio Tinto: Lowering Our Estimates, With Still A Positive View

Core Viewpoint - Rio Tinto Group is experiencing a positive operational performance with a focus on production growth and strategic projects, despite facing challenges in certain areas such as copper production and alumina outlook [1][5][6]. Production Results - Pilbara iron ore shipments reached 80.3 million tonnes (Mt), a 2% increase year-over-year, while production was slightly down at 79.5 Mt, a 2% decrease [13]. - Bauxite production was reported at 14.7 Mt, an 8% increase, and mined copper output reached 171,000 tonnes (kt), an 18% increase [13]. - The company faced a train collision in May that impacted Pilbara operations, but no casualties occurred due to the automated nature of the train [5]. 2024 Guidance - Rio Tinto has adjusted its alumina production outlook from 7.6-7.9 Mt to 7.0-7.3 Mt due to gas supply constraints [6]. - The company anticipates top-line sales of $26.4 billion and EBITDA of$11.9 billion for 2024, reflecting a downward revision due to weak iron ore prices and disappointing performance at the Kennecott mine [18]. Strategic Developments - The Simandou facility has received all necessary regulatory approvals, with first production expected in 2025, targeting over 30 million tonnes by 2028 [4]. - The Jadar lithium project in Serbia is nearing government approval, which could provide significant organic growth opportunities for Rio Tinto [4]. Financial Metrics - The updated EBITDA estimate for Rio Tinto is approximately $24 billion, with a valuation of$76 per share based on a 5x EV/EBITDA multiple [8]. - The company currently trades at a 4.5 EV/EBITDA, which is below its five-year historical average [8]. Market Context - Analysts project a top-line sales figure of $27.9 billion and an EBITDA of$12.5 billion, with net debt expected to reach $6.1 billion by the end of the period [7]. - The iron ore price has declined to$108 per tonne due to weak fundamentals in China and elevated port inventories [14].