VALUATION HIGHLIGHTS

1. Iron Ore constitutes 77% of the Trefis price estimate for Rio Tinto's stock.
2. Aluminum constitutes 9% of the Trefis price estimate for Rio Tinto's stock.

WHAT HAS CHANGED?

1. Latest earnings

Rio posted a mixed set of results for FY 2023. While revenue declined by -2.7% year-over-year to $54.04 billion, earnings came in at $6.17 per share.

2. Chinese real estate crisis

Economic headwinds are mounting in China, the world's largest steel consumer, given stringent Covid-19-related restrictions and turmoil in the real estate sector. This could put some pressure on iron ore demand and prices

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Rio Tinto's value that present opportunities for upside or downside to the current Trefis price estimate for Rio Tinto:

Average realized prices of Iron Ore

• Average realized prices of iron ore: Average prices per ton rose from around $54 in 2018 to $112 in 2021. The metric fell to about $89 in 2022. We expect the number to stabilize at about $95 by 2029. However, if prices rise to over $120, there could be a 15% upside to our price estimate. On the other side, if prices fall to about $80, there could be a 15% downside to our price estimate.

BUSINESS SUMMARY

Rio Tinto Group is a diversified mining and resources group, headquartered in London and Melbourne. The company has operations across six continents, but these are mainly concentrated in Australia and Canada. The company has many subsidiaries, each focusing on one of the different product types in the company's portfolio. The company has a principal focus on mining primary ore for metals. It also owns several high-capacity smelting facilities for aluminum and refining facilities for copper & gold.

SOURCES OF VALUE

The company's Iron Ore division is the most valuable division for the following reasons:

The iron ore segment accounts for around 55% of the company's revenues and nearly 75% of its EBITDA. These numbers may decline only marginally over the next few years. The division will still contribute a majority of the company's profits. The company has long-term contracts with iron and steel manufacturers worldwide, securing the interests of its mining operations.

KEY TRENDS

Potential impact of the U.S. government's infrastructure plan

The U.S. government has planned a multi-year overhaul of domestic infrastructure, with a particular focus on transportation infrastructure. The implementation of this infrastructure plan, once it has been passed by Congress, is expected to sharply boost U.S. demand for copper and iron ore, which should translate into improved pricing environments for these commodities.

Aluminum as a replacement for other materials and metals

• Aluminum is lightweight and its use in cars can help reduce weight and thus emissions.
• Aluminum is durable and requires lower maintenance (corrosion resistant) compared to other metals and is hence finding its applications in the construction industry.
• The unique characteristics of aluminum, such as malleability and ductility, help in the fabrication, storage, and distribution of retail products. It is thus being widely used in the packaging industry as well.