RIO_TINTO_LTD(RIO.AX)：4Q12-PRODUCTION_SET_TO_INCREASE_8%_AFTER_A_FLAT_YEAR-2013-01-16.ppt

kaan peker,90,rio tinto ltd,1,2,deutsche bank markets research,rating buy australasia australia,company rio tinto ltd,date 15 january 2013 company update,m&m - diversified resources,reuters,bloomberg,exchange ticker,price at 15 jan 2012 price target - 12mth 52 week range (aud),65.90 82.80 72.30 - 48.63,rio.ax,rio au,asx,rio,all ordinaries,4,753,4q12 - production set to increase 8%,after a flat year big assets and cost out to drive earnings growth rio tinto increased its cu eq production 2.3% to 1.86mt in the december q. the result was slightly below our forecast 1.90mt due to maintenance in met coal and lower tio2. however the pilbara system operated above 250mtpa (nameplate is 237mtpa), iron ore sales (and lump) were slightly better and the stage 1 expansion is tracking nicely (and ahead of schedule in our view). no production guidance was given but we forecast an 8% lift in cu eq production in 2013 (after zero growth in 2012) with contributions from big assets such as oyu tolgoi, escondida, rbm, alma and the pilbara. we still see value in rio at current levels with cost out and stronger production to drive earnings growth. iron ore production beats guidance again global iron ore production totaled 254mt for 2012 beating guidance (250mt) again. sales from the pilbara were a record and the lump to fines ratio of 29% was a bit better than our forecast 27% when including yandi fines. we might,paul young research analyst (+61) 2 8258-2587 rob clifford research analyst (+44) 20 754-58339 research analyst (+61) 2 8258-1424 key changes,sound like a broken record but we continue to believe the stage 1 pilbara expansion to 290mtpa is 3 months early. the 100mtpa expansion of cape lambert is well advanced with only the installation of the conveyor, shiploaders and instrumentation outstanding. we expect the 2nd jetty and the 6th car dumper to be completed in 2q13, which are the big infrastructure components for the expansion. the rail system upgrade to 290mtpa is complete and all the mines are on schedule. we continue to believe our cy13,price target sales (fye) ebit margin (fye) net profit (fye),84.20 to 82.80 49,890 to 50,566 19.4 to 19.6 8,801.5 to 8,804.3,-1.7% 1.4% 1.2% 0.0%,and cy14 production forecasts of 249mt and 273mt might be at least 10mt to conservative, but we will wait until the march q construction update before we possibly upgrade our numbers.,price/price relative,big copper contributing, tio2 misses guidance with higher grades being processed at both escondida and bingham and first production from oyu tolgoi on track for 1q13 we forecast a 10% yoy lift in mined copper production to 607kt. a 20% miss in tio2 feedstock production (vs. capacity) was disappointing with no explanation given, however we can,80 70 60 50 40 1/11,7/11,1/12,7/12,only assume it might be a combination of maintenance and weaker demand,for rutile and chloride slag. as such we have reduced our production forecasts.,all ordinaries (rebased),valuation and risks our valuation is set in-line with our a$82.8/sh npv (assumes a 9.0% wacc). key risks include weaker commodity prices and higher capex.,performance (%) absolute all ordinaries,1m 4.7 3.4,3m 17.0 5.4,12m 1.2 11.7,stock data,forecasts and ratios,market cap (audm),122,050,year end dec 31 net profit (usdm) eps (usd) eps growth (%) per (x),2010a 13,901 7.07 98.6 9.8,2011a 15,549 8.06 14.1 9.8,2012e 8,804 4.74 -41.2 14.7,2013e 9,504 5.12 7.9 13.6,2014e 10,752 5.79 13.1 12.0,market cap (usdm) shares outstanding (m) daily volume (usdm) free float,128,940 1,852.1 106.93 100.00,source: deutsche bank estimates, company data pre-exceptionals/extraordinaries multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except p/b _ deutsche bank ag/sydney deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 072/04/2012.,0,0,60,20,15 january 2013 m&m - diversified resources rio tinto ltd,model updated:15 january 2013,fiscal year end 31-dec,2009,2010,2011,2012e,2013e,2014e,running the numbers,financial summary,australasia australia m&m - diversified resources rio tinto ltd,db eps (usd) reported eps (usd) dps (usd) bvps (usd) valuation metrics price/sales (x),3.56 2.75 0.45 22.37 1.8,7.07 7.24 1.08 29.73 2.5,8.06 3.02 1.45 28.01 2.5,4.74 5.13 1.53 29.24 2.5,5.12 5.12 1.61 32.67 2.3,5.79 5.79 1.73 36.72 2.1,reuters: rio.ax buy price (15 jan 12) target price 52 week range market cap (m),bloomberg: rio au aud 65.90 aud 82.80 aud 48.63 - 72.30 audm 122,050,p/e (db) (x) p/e (reported) (x) p/bv (x) fcf yield (%) dividend yield (%) ev/sales ev/ebitda ev/ebit,11.7 15.1 2.7 5.2 1.1 2.5 8.4 11.6,9.8 9.5 2.6 10.1 1.6 2.7 6.6 7.7,9.8 26.0 2.2 5.1 1.8 2.7 6.0 6.9,14.7 13.6 2.4 nm 2.2 3.0 10.5 15.1,13.6 13.6 2.1 0.7 2.3 2.7 8.2 11.4,12.0 12.0 1.9 3.4 2.5 2.6 7.3 9.9,usdm 128,940,income statement (usdm),company profile rio tinto is a global diversified mining company with interests in aluminum, borax, coal, copper, diamonds, gold, iron ore, titanium dioxide feedstock, uranium and zinc. rio tintos key mining operations are located in australia, new zealand, south africa, south america, the united states, europe, and canada. rio tintos management structure is based primarily on six principal global products businesses aluminium, diamonds, copper, energy (coal and uranium), industrial minerals, and iron ore supported by worldwide exploration and technology groups price performance 90 80 70,sales ebitda ebit pre-tax profit net income cash flow (usdm) cash flow from operations net capex free cash flow equity raised/(bought back) dividends paid net inc/(dec) in borrowings other investing/financing cash flows net cash flow change in working capital,41,825 12,378 8,951 6,625 4,872 9,212 -5,388 3,824 14,877 -876 -16,420 1,643 3,105 234,55,171 22,966 19,529 19,293 14,238 18,191 -4,591 13,600 92 -1,754 -9,360 3,137 5,731 -185,60,537 27,604 23,787 13,092 5,826 20,030 -12,335 7,695 -5,504 -2,236 4,208 -4,441 -610 1,778,50,566 14,230 9,925 11,376 9,535 9,579 -14,164 -4,585 105 -3,017 3,904 327 -2,132 1,638,56,961 18,975 13,598 13,336 9,504 15,552 -14,602 950 -2,894 -3,000 1,000 -3,944 -365,60,228 21,326 15,637 15,336 10,752 18,089 -13,681 4,408 -3,067 -3,000 1,000 -659 -610,balance sheet (usdm),50 40 jan 11apr 11 jul 11 oct 11jan 12apr 12 jul 12 oct 12,cash and cash equivalents property, plant & equipment goodwill,4,233 45,803 14,268,9,948 56,024 15,296,9,670 64,967 8,187,6,399 74,243 8,246,2,454 82,468 8,246,1,795 89,460 8,246,rio tinto ltd margin trends 50 40 30,all ordinaries (rebased),other assets total assets debt other liabilities total liabilities total shareholders equity net debt,32,932 97,236 23,002 28,309 51,311 45,925 18,769,31,134 112,402 14,341 32,787 47,128 65,274 4,393,36,721 119,545 18,477 41,785 60,262 59,208 8,807,33,529 122,416 21,975 36,307 58,282 64,134 15,576,34,519 127,687 18,975 37,901 56,876 70,811 16,521,34,873 134,374 15,975 39,744 55,719 78,655 14,180,key company metrics,10,09,10,11,12e,13e,14e,sales growth (%) db eps growth (%),nm na,31.9 98.6,9.7 14.1,-16.5 -41.2,12.6 7.9,5.7 13.1,ebitda margin growth & profitability 40 30 20 10,ebit margin,30 25 20 15,payout ratio (%) ebitda margin (%) ebit margin (%) roe (%) net debt/equity (%) net interest cover (x),16.3 29.6 21.4 19.5 40.9 11.1,14.9 41.6 35.4 27.2 6.7 31.8,47.9 45.6 39.3 28.0 14.9 62.3,29.6 28.1 19.6 16.5 24.3 56.2,31.4 33.3 23.9 16.6 23.3 51.9,29.7 35.4 26.0 16.7 18.0 52.0,0 -10,10 5,dupont analysis,-20,0,ebit margin (%),21.4,35.4,39.3,19.6,23.9,26.0,09,10,11,12e,13e,14e,x asset turnover (x),0.4,0.5,0.5,0.4,0.5,0.5,x financial cost ratio (x),0.9,1.0,1.0,1.0,1.0,1.0,solvency 50 40 30 20 10,sales growth (lhs),roe (rhs),70 60 50 40 30 20 10,x tax and other effects (x) = roa (post tax) (%) x financial leverage (x) = roe (%) annual growth (%) x nta/share (avg) (x) = reported eps annual growth (%),0.6 5.2 2.9 15.1 na 18.2 2.75 na,0.8 13.6 2.1 27.9 84.4 26.0 7.24 162.9,0.2 5.0 2.1 10.5 -62.3 28.7 3.02 -58.3,1.0 7.9 2.3 17.9 70.1 28.7 5.13 69.9,0.7 7.6 2.2 16.6 -7.3 30.9 5.12 -0.3,0.7 8.2 2.0 16.7 0.9 34.6 5.79 13.1,0,0,source: company data, deutsche bank estimates,09,10,11,12e,13e,14e,net debt/equity (lhs) paul young +61 2 8258-2587 page 2,net interest cover (rhs) ,deutsche bank ag/sydney,-,-,-,-,-,-,-,-,),),),),),15 january 2013 m&m - diversified resources rio tinto ltd rio tinto operational and financial summary data,fx/commodity assumptions,cy 10a cy 11a cy 12f cy 13f cy 14f cy 15f cy 16f cy 17f cy 18f,cy 19f,cy 20f,npv (hd12),us$m,us$/sh,aud/sh,audusd iron ore - lump (us$/t) - cif iron ore - fines (us$/t) - cif aluminium (us$/lb) copper (us$/lb) energy coal (us$/t) coking coal (us$/t) uranium (us$/lb) rutile (us$/t),0.92 137 122 0.99 3.43 91 195 61 589,1.03 181 168 1.09 4.00 122 289 63 1,045,1.04 136 124 0.93 3.61 101 208 53 2,293,1.04 137 125 0.96 3.69 94 178 65 1,300,1.01 127 115 1.00 3.40 102 185 70 1,750,0.97 122 110 1.00 3.29 100 180 68 1,900,0.92 115 103 1.03 3.15 98 173 65 1,750,0.87 107 95 1.07 3.01 98 165 63 1,300,0.82 100 88 1.10 2.86 98 158 73 1,300,0.80 106 92 1.17 3.17 99 176 75 1,522,0.80 109 94 1.20 3.24 101 180 76 1,560,aluminium (excl. pac al) copper diamonds minerals energy iron ore pacific aluminium investments corporate and other operations,14,035 20,437 2,558 17,496 8,862 86,531 4,126 4,000 (14,957),7.58 11.03 1.38 9.45 4.79 46.72 2.23 2.16 (8.08),9.13 13.74 1.66 11.38 5.77 56.29 2.68 2.60 (9.73),net debt,(16,521),(8.92),(10.75),k ey financial metrics,9403,10921,11211,12072,11593,11222,13733,14704 total,127,620,68.91,82.79,underlying earnings (us$m),13,901 15,549,8,804,9,504 10,752 10,815 11,755 11,512 11,234,13,868,15,389,operating cash flow (us$m),18,191 20,030,9,579,15,552 18,089 18,674 19,858 20,040 20,209,22,843,24,291 wacc (nominal),9.0% shar es,1,852m,capex (incl. exploration) and divestments (us$m) dividend (us$m),(804) (12,682) (11,346) (1,754) (2,236) (3,017),(13,602) (12,681) (13,049) (12,496) (11,965) (12,973) (2,894) (3,067) (3,279) (3,446) (3,618) (3,799),(10,407) (3,989),(9,993) (4,188),acquisitions (us$m),(907) (6,133) (1,491),free cash flow (us$m) - before debt & equity,14,726,(1,021) (6,274),(944),2,341,2,346,3,916,4,456,3,437,8,447,10,109,net debt (us$m),4,393,8,807 15,576,16,521 14,180 11,834,7,918,3,461,24,(8,423) (18,532),gearing (nd/e - % roe (%) roa (%,7% 27% 21%,15% 28% 22%,24% 17% 9%,23% 17% 11%,18% 17% 12%,14% 15% 12%,8% 14% 12%,3% 12% 12%,0% 11% 11%,-7% 13% 13%,-13% valuation (hd12) 13% 14%,eps (usc) eps change (%),707 157%,806 14%,474 -41%,512 8%,579 13%,582 1%,633 9%,620 -2%,605 -2%,746 23%,828 11%,iron ore 56%,eps cagr (% - off cy 12 earnings,8%,11%,7%,7%,6%,4%,7%,7%,dps (usc) payout ratio (%),108 15%,145 18%,153 32%,161 31%,173 28%,181 31%,190 30%,200 32%,210 35%,220 29%,231 28%,production,energy,copper - refined (kt),393,334,279,303,303,295,295,295,295,295,295,6%,copper - mined (kt) iron ore (mt) - attributable iron ore (mt) - pilbara (100%) coal - hard & semi soft coking (mt) coal - t hermal (mt),674 179 224 12.0 60.7,520 192 231 11.7 19.7,548 199 239 11.4 20.6,607 206 249 14.9 22.8,605 231 273 16.4 22.3,620 268 313 17.7 24.3,637 313 364 19.1 27.0,729 340 394 23.7 28.3,810 365 419 27.2 29.8,810 368 419 28.9 31.4,810 378 419 33.8 33.5,minerals 11% diamonds 2%,copper 13%,pacific aluminium 3% aluminium (excl. pac al) 9%,alumina (mt) aluminium (mt) uranium (kt) diamonds (mcts) gold (koz) titanium dioxide feedstock (kt) copper eq pr oduction (mt) copper eq cagr (%,9.1 3.8 5.2 13.8 714 1,392 7.4,8.9 3.8 3.2 11.7 576 1,442 7.0,7.3 2.3 4.4 13.3 230 1,595 7.0,8.0 2.5 5.1 24.1 240 2,090 7.6 8.0%,8.3 2.2 3.9 26.6 251 2,400 7.9 6.2%,9.1 2.4 5.0 26.7 251 2,400 8.6 7.2%,9.1 2.5 5.0 26.7 245 2,400 9.3 7.4%,9.2 2.5 5.0 26.8 245 2,400 9.8 7.0%,9.2 2.5 5.0 26.8 245 2,400 10.4 6.8%,9.3 2.5 5.0 26.9 245 2,400 10.5 5.9%,9.3 2.5 5.0 26.9 245 rev enue split (2012f) 2,400 10.7 energy 5.4% 10%,revenue (us$m) aluminium copper diamonds minerals energy iron ore others (includes associates and jvs) total,15,206 7,782 682 2,353 5,652 24,024 1,069 56,768,15,582 7,634 727 2,493 7,327 29,909 -2,543 61,129,10,161 6,138 729 2,811 5,314 23,676 1,739 50,566,10,875 8,305 931 3,765 5,286 25,064 2,471 56,698,10,829 7,952 1,111 4,753 5,316 27,164 3,103 60,228,11,017 8,413 1,124 4,921 5,582 27,942 2,641 61,641,11,440 7,954 1,167 4,792 5,816 30,273 2,686 64,129,11,766 9,212 1,179 4,396 6,083 30,191 2,839 65,666,12,077 9,943 1,207 4,407 6,955 29,858 2,992 67,440,12,755 11,122 1,243 4,975 7,978 31,617 2,691 72,380,13,074 11,859 1,280 5,109 9,105 33,101 2,634 76,162,minerals 7% diamonds 2% copper 15%,aluminium,iron ore 46%,capex (us$m) growth,20%,aluminium copper diamonds,401 926 151,698 2,372 385,906 1,976 698,1,200 1,554 300,900 1,339 300,0 617 0,0 335 0,0 204 0,0 401 0,0 408 0,0 1,867 0 ebitda split (2012f),minerals energy iron ore total growth capex sustaining capex total capex,0 496 1,788 3,761 2,093 5,854,0 1,025 2,935 6,908 4,876 12,011,0 1,355 3,524 8,459 5,988 14,447,0 760 5,461 9,275 5,327 14,833,0 1,000 4,895 8,434 5,247 13,413,0 1,040 6,423 8,080 4,969 13,049,0 1,540 5,229 7,104 5,392 12,496,0 2,540 3,368 6,111 5,854 11,965,0 3,041 3,390 6,832 6,141 12,973,0 2,043 1,662 4,114 6,294 10,407,0 1,045 639 3,551 6,442 9,993,iron ore 74%,ebitda (us$m),aluminium copper,2,418 4,503,1,763 3,394,918 1,934,1,060 3,645,1,305 3,624,1,161 4,228,1,826 3,772,2,191 4,439,2,535 4,485,3,069 5,311,3,216 5,916,diamonds minerals energy iron ore others (includes associates and jvs) total,158 448 2,299 16,605 -453 25,978,180 523 2,232 20,930 -501 28,521,244 932 1,011 14,427 -983 18,484,435 1,420 612 14,473 -766 20,880,615 2,091 1,178 15,076 -757 23,132,615 2,296 1,552 15,006 -1,019 23,839,659 2,184 1,812 16,130 -1,013 25,370,672 1,848 1,923 15,608 -1,056 25,625,710 1,901 2,248 14,675 -1,076 25,478,740 2,406 2,815 15,931 -1,109 29,163,758 2,472 3,184 16,738 -1,136 31,149,energy minerals 5% 4.8%,diamondscopper 1% 10%,aluminium 5%,ebitda mar gins (%,aluminium copper diamonds,16% 58% 20%,11% 44% 22%,9% 32% 33%,10% 44% 40%,12% 46% 46%,11% 50% 48%,16% 47% 48%,19% 48% 45%,21% 45% 47%,24% 48% 51%,25% 50% 51%,minerals,energy iron ore total,41% 69% 46%,30% 70% 47%,19% 61% 37%,12% 58% 37%,22% 55% 38%,28% 54% 39%,31% 53% 40%,32% 52% 39%,32% 49% 38%,35% 50% 40%,35% 51% 41%,source: company data, db estimates,deutsche bank ag/sydney,page 3,15 january 2013 m&m - diversified resources rio tinto ltd 4q12 production figure 1: rio tinto production data,attributable production unless states otherwise,quarterly comp.,1q12a,2q12a,3q12a,4q12f,4q12a,2012,qoq,yoy,vs db,mined production,iron ore prodn (mt, rio share) -pilbara -canada iron ore prodn (mt, 100% basis) -pilbara -canada iron ore sales (mt, rio share) -pilbara -canada iron ore sales (mt, 100% basis) -pilbara -canada rtca prodn-total (mt,rio share) -rtca - hcc -rtca - semi-soft -rtca - thermal us coal prodn - total rtca sales - total (mt, rio share) -rtca - hcc -rtca - semi-soft & thermal us coal sales - total copper - kt gold - koz uranium - mlb diamonds - mcts bauxite - mt borates - kt tio2 feedstock - kt molybdenum - kt,45.6 44.0 1.7 58.6 55.8 2.8 41.5 40.1 1.4 53.7 51.3 2.4 6.4 1.7 0.6 4.1 1.9 6.5 2.0 4.5 0.0 121.1 78 2.0 3.5 8.8 120 374 3.1,48.6 46.7 1.9 61.7 58.4 3.3 47.9 45.9 2.0 60.9 57.4 3.4 7.8 2.0 1.0 4.8 0.0 7.8 2.0 5.8 0.0 133.5 75 1.8 2.8 9.4 132 370 2.6,52.6 50.3 2.4 67.0 62.9 4.0 51.2 48.5 2.6 65.5 61.0 4.5 8.4 2.3 0.7 5.4 0.0 8.4 2.3 6.1 0.0 132.0 68 3.1 3.7 10.3 111 401 2.5,51.9 49.5 2.4 66.1 62.0 4.1 52.5 50.1 2.4 66.7 62.6 4.1 8.6 2.3 1.2 5.1 0.0 8.6 2.3 6.3 0.0 162.2 90 2.8 3.7 9.5 125 567 3.0,52.0 49.7 2.3 66.2 62.3 3.9 52.4 50.2 2.3 66.8 62.9 3.8 9.1 1.9 1.0 6.1 0.0 8.6 1.8 7.1 0.0 163.9 73 2.9 3.2 10.7 100 450 1.1,198.9 190.6 8.3 253.5 239.4 14.1 192.9 184.6 8.3 246.8 232.7 14.1 31.5 7.9 3.4 20.3 0.0 31.7 8.2 23.5 0.0 550.5 295 9.8 13.3 39.4 463 1,595 9.3,-1% -1% -3% -1% -1% -3% 3% 3% -15% 2% 3% -15% 8% -17% 45% 14% na 2% -21% 16% na 24% 7% -8% -12% 4% -10% 12% -56%,1% 1% 13% 2% 1% 13% 2% 2% -2% 2% 2% -2% 17% -27% 39% 39% -100% 3% -37% 32% -100% 20% -53% 29% 9% 13% -12% 18% -52%,0% 0% -5% 0% 0% -5% 0% 0% -6% 0% 0% -7% 6% -16% -14% 21% na 0% -20% 14% na 1% -19% 2% -12% 13% -20% -21% -64%,refined production,alumina - kt aluminium - kt copper - kt gold - koz,2,391 854 74.1 100,2,358 841 49.3 55,2,675 855 69.7 46,2,591 863 91.7 59,2,617 906 86.2 78,10,041 3,456 279.2 279,-2% 6% 24% 70%,11% -6% 7% -10%,1% 5% -6% 33%,source: deutsche bank, company data,page 4,deutsche bank ag/sydney,15 january 2013 m&m - diversified resources rio tinto ltd divisional highlights iron ore the pilbara ran above nameplate once again operating at 249mtpa across the mines and 252mtpa across the rail and port (sales) proving that the revised nameplate of 237mtpa remains conservative, although this does take into consideration lost shipping says during the wet season and there were 3 days lost in january (11 days of lost shipping are assumed in the base case). sales of 62.9mt from the pilbara were a record and the lump to fines ratio of 29% was a bit better than our forecast 27% when including yandi fines. global iron ore production totaled 254mt, in-line with our forecast and again above guidance of 250mt, which we always viewed as conservative. reviewing the construction milestones of the stage 1 expansion to 290mtpa, we continue to believe the expansion is 3 months early. the 100mtpa expansion of cape la