Rio Tinto (RIO) Last Update 3/15/23
Related: CLF FCX VALE
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Rio Tinto
STOCK PRICE
DIVISION
% of STOCK PRICE
Iron Ore
69.1%
$59.99
Copper
11.5%
$10.02
Aluminum
10.1%
$8.81
Energy
0.0%
$0.00
Net Debt
14.0% $12.20
TOTAL
100%
$86.87
$74.67
Yours
Trefis Price
N/A
$59.05
Market
 
Top Drivers for Period
Key Drivers
loading revenue data...
loading ebitda data...
loading cash flow data...

TREFIS Analysis


Trefis Report
  1. Download Trefis Report

RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Rio Tinto Company

VALUATION HIGHLIGHTS

  1. Iron Ore constitutes 69% of the Trefis price estimate for Rio Tinto's stock.
  2. Copper constitutes 12% of the Trefis price estimate for Rio Tinto's stock.
  3. Aluminum constitutes 10% of the Trefis price estimate for Rio Tinto's stock.

WHAT HAS CHANGED?

  1. Latest earnings

Rio Tinto had a relatively tough 2022, with revenue declining by 12% year-over-year to $55.6 billion. Adjusted earnings also fell by about 38% year-over-year to $13.3 billion. The decline was largely due to the company's bread-and-butter iron ore business, which saw price realizations drop about 26% versus last year to $106 per metric ton, with shipments remaining roughly flat versus last year.

  1. Near-term headwinds

There are a couple of factors clouding the outlook for the mining industry. The U.S. Federal Reserve and other major central banks have been hiking interest rates at an aggressive pace to combat inflation. In September, the U.S. central bank raised its benchmark rates yet again by 0.75%, taking the Federal Funds rate to over 3%, from just about 0.25% at the beginning of this year. Higher interest rates are widely expected to result in a hard landing for the U.S. economy, leading to lower demand from key steel consumers such as the automotive and construction industry.

  1. 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. We expect the number to stabilize at about $100 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 a number of subsidiaries, each focusing on one of the different product types in the company's portfolio. The company has a principal focus on mining of primary ore for metals. It also owns a number of 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 64% of the company's revenues and nearly 80% 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 ten 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.