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1、90,80,70,50,40,1,2,Deutsche BankMarkets Research,RatingBuyAustralasiaAustralia,CompanyRio Tinto Ltd,Date10 October 2012Company Update,M&M-DiversifiedResources,Reuters,Bloomberg,Exchange Ticker,Price at 9 Oct 2012Price target-12mth52 week range(AUD),55.7085.9572.30-48.63,RIO.AX,RIO AU,ASX,RIO,ALL ORD
2、INARIES,4,527,Investor seminar-pruning costs and,slowing project approvalsInvesting slower,divesting and cutting costs to be safe.Rio presented the first half of its investor seminar in London today with a focuson the Copper and Technology divisions.At the Group level,the companysview of near term v
3、olatility and limited uptick in China until after the leadershipchange has driven a drop in GDP growth expectations to below 8%,a freeze onproject approvals,a focus on divestments,and a move to cut sustaining capexand costs.Current approved projects are all continuing.The 13%CAGR copperproduction pl
4、an to 2015 is higher than our 10%and offers upside if delivered.Rio retains the position of having the best near-term growth.Buy on valuation.Capital discipline and a focus on cost outRio“are no longer able to invest in all the value accretive projects that we haveavailable and there will be no more
5、 capital approvals in the near term”(Rioscapex plans for 2012 remain at US$13.7bn,we forecast US$14.2bn.AroundUS$5bn of iron ore mine capex still needs to be approved).On cost cutting,Paul YoungResearch Analyst(+61)2 8258-2587paul-Rob CliffordResearch Analyst(+44)20 754-Kaan PekerResearch Analyst(+6
6、1)2 8258-Price/price relative,US$500m of savings have been achieved with further cost reductions planned.Rio has a US$38bn cost base,of which US$14.5bn is in aluminium alone.Evaluation and exploration expenditure totaled US$1bn in 1H and is the easiestplace to start cutting,along with head office,bo
7、th are well underway.60Copper division 13%CAGR to 2015 expectedRio is expecting some big things from copper with a 15%CAGR in production,from 2011 to 2015(to c.800kt)driven by grade improvement at Kennecott andEscondida and the commissioning of Oyu Tolgoi.OT is 97%complete and,10/10,4/11Rio Tinto Lt
8、d,10/11,4/12,waiting on a power agreement with Chinese suppliers Rio stated that the,ALL ORDINARIES(Rebased),hold-up was simply due to commercial negotiating(haggling)and not politics.Commercial production is expected 6-8 months after first power.Leveraging technology,Performance(%)AbsoluteALL ORDIN
9、ARIES,1m6.34.1,3m-1.58.8,12m-16.17.1,Rio is investing,and expecting,a lot from its technology division to increasedevelopment speeds,increase recoveries and efficiencies and ultimatelyreduce costs.Wins so far include the reduction of 18 haul trucks fromincreased fleet availability(US$5m and 5 operat
10、ors per truck)and averagetruck payload from 97%to 100%.Valuation and risksOur A$85.95/sh PT is set in-line with our NPV(assumes a 9.0%WACC).Keyrisks include weaker commodity prices and higher capex.Forecasts And Ratios,Year End Dec 31Net Profit(USDm)EPS Growth(%)PER(x),2010A13,947104.69.7,2011A15,55
11、115.19.6,2012E9,600-36.711.0,2013E9,6500.510.9,2014E11,81222.48.9,Source:Deutsche Bank estimates,company dataPre-exceptionals/extraordinariesMultiples and yields calculations use average historical prices for past years and spot prices for current and future years_Deutsche Bank AG/SydneyAll prices a
12、re those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its rese
13、arch 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 ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
14、.MICA(P)072/04/2012.,0,0,60,50,10 October 2012M&M-Diversified ResourcesRio Tinto Ltd,Model updated:02 October 2012,Fiscal year end 31-Dec,2009,2010,2011,2012E,2013E,2014E,Running the numbers,Financial Summary,AustralasiaAustraliaM&M-Diversified ResourcesRio Tinto Ltd,DB EPS(USD)Reported EPS(USD)DPS(
15、USD)BVPS(USD)Valuation MetricsPrice/Sales(x),3.472.660.4522.371.8,7.097.261.0829.732.4,8.163.061.4528.012.5,5.175.561.5329.222.1,5.195.191.6132.752.1,6.366.361.7337.391.9,Reuters:RIO.AXBuyPrice(9 Oct 12)Target Price52 Week rangeMarket Cap(m),Bloomberg:RIO AUAUD 55.70AUD 85.95AUD 48.63-72.30AUDm 103,
16、159,P/E(DB)(x)P/E(Reported)(x)P/BV(x)FCF yield(%)Dividend yield(%)EV/SalesEV/EBITDAEV/EBIT,12.015.62.75.01.12.58.511.8,9.79.52.610.11.62.76.67.7,9.625.72.25.21.82.75.96.8,11.010.21.9nm2.72.59.113.0,10.910.91.7nm2.82.67.09.6,8.98.91.53.93.02.45.97.7,USDm 105,251,Income Statement(USDm),Company Profile
17、Rio Tinto is a global diversified mining company withinterests in aluminum,borax,coal,copper,diamonds,gold,iron ore,titanium dioxide feedstock,uranium andzinc.Rio Tintos key mining operations are located inAustralia,New Zealand,South Africa,South America,theUnited States,Europe,and Canada.Rio Tintos
18、management structure is based primarily on six principalglobal products businesses Aluminium,Diamonds,Copper,Energy(coal and uranium),Industrial Minerals,and Iron Ore supported by worldwide exploration andtechnology groupsPrice Performance908070,SalesEBITDAEBITPre-tax profitNet incomeCash Flow(USDm)
19、Cash flow from operationsNet CapexFree cash flowEquity raised/(bought back)Dividends paidNet inc/(dec)in borrowingsOther investing/financing cash flowsNet cash flowChange in working capital,41,82512,2148,7876,4614,7089,048-5,3883,66014,877-876-16,4201,8072,941234,56,57623,01219,57519,33914,28418,237
20、-4,59113,64692-1,754-9,3603,0915,777-185,60,53927,60623,78913,0945,82820,030-12,3357,695-5,504-2,2364,208-4,441-6101,778,49,48513,8479,65211,10410,3319,379-14,299-4,920105-3,0173,904325-2,4681,918,51,31218,79913,80313,5179,65015,007-15,192-185-2,894-3,0001,000-5,091-1,074,56,02822,36117,13416,78511,
21、81218,571-14,4264,145-3,067-3,0001,000-934-686,Balance Sheet(USDm),40Oct 10Jan 11Apr 11Jul 11 Oct 11Jan 12Apr 12Jul 12,Cash and cash equivalentsProperty,plant&equipmentGoodwill,4,23345,80314,268,9,94856,02415,296,9,67064,9678,187,6,06174,4898,246,97083,6848,246,3691,8828,246,Rio Tinto LtdMargin Tren
22、ds5040302010,ALL ORDINARIES(Rebased),Other assetsTotal assetsDebtOther liabilitiesTotal liabilitiesTotal shareholders equityNet debtKey Company MetricsSales growth(%),32,93297,23623,00228,30951,31145,92518,769nm,31,134112,40214,34132,78747,12865,2744,39335.3,36,721119,54518,47741,78560,26259,2088,80
23、77.0,33,197121,99221,97535,90157,87664,11615,914-18.3,33,771126,67118,97536,77955,75470,91718,0053.7,34,375134,53815,97538,71554,69079,84915,9399.2,09,10,11,12E,13E,14E,DB EPS growth(%),na,104.6,15.1,-36.7,0.5,22.4,EBITDA MarginGrowth&Profitability,EBIT Margin,Payout ratio(%)EBITDA Margin(%)EBIT Mar
24、gin(%),16.929.221.0,14.840.734.6,47.345.639.3,27.328.019.5,30.936.626.9,27.139.930.6,403020100-10-20-30,09,10,11,12E,13E,14E,302520151050,ROE(%)Net debt/equity(%)Net interest cover(x)DuPont AnalysisEBIT margin(%)x Asset turnover(x),19.040.910.921.00.4,27.36.731.834.60.5,28.114.962.339.30.5,18.024.85
25、4.719.50.4,16.825.448.426.90.4,18.220.049.230.60.4,x Financial cost ratio(x),0.9,1.0,1.0,1.0,1.0,1.0,Solvency5040302010009,10,Sales growth(LHS)1112E,13E,ROE(RHS)70605040302010014E,x Tax and other effects(x)=ROA(post tax)(%)x Financial leverage(x)=ROE(%)annual growth(%)x NTA/share(avg)(x)=Reported EP
26、Sannual growth(%)Source:Company data,Deutsche Bank estimates,0.65.02.914.6na18.22.66na,0.813.62.128.091.526.07.26173.0,0.25.02.110.5-62.429.13.06-57.9,1.18.62.319.484.328.75.5681.8,0.77.82.216.8-13.230.95.19-6.6,0.79.02.018.28.135.06.3622.4,Net debt/equity(LHS)Paul Young+61 2 8258-2587Page 2,Net int
27、erest cover(RHSpaul-,Deutsche Bank AG/Sydney,&,10 October 2012M&M-Diversified ResourcesRio Tinto LtdRIO TINTO OPERATIONAL AND FINANCIAL SUMMARY DATA,FX/COMMODITY ASSUMPTIONSAUDUSDIron ore-lump(US$/t)-CIFIron ore-fines(US$/t)-CIFAluminium(US$/lb)Copper(US$/lb)Energy Coal(US$/t)Coking Coal(US$/t)Urani
28、um(US$/lb)Rutile(US$/t),CY08A0.85121871.163.15107.6249.065.5523,CY09A0.7995750.762.3484.5171.860.5532,CY10A0.921371220.993.4391.3194.860.8589,CY11A1.031811681.094.00122.0288.863.01,045,CY12F1.041361240.933.62100.8207.558.12,325,CY13F1.021281160.963.6394.0182.565.02,100,CY14F0.991321201.003.40102.020
29、0.070.02,000,CY15F0.941221101.033.23100.0187.567.51,600,CY16F0.881121001.073.0698.0175.065.01,400,CY17F0.83102901.102.8998.0162.562.51,200,CY18F0.80106921.333.2497.6175.671.31,171,CY19F0.80109941.363.32100.0180.073.11,200,CY20F0.80111971.393.41102.5184.574.91,230,NPV(HD12)AluminiumCopperDiamonds&Ind
30、 MinEnergyIron OreInvestmentsCorporate and other opsNet DebtTOTAL,US$mn17,69222,68018,9009,05886,5621,000(8,492)(15,914)131,487,US$/sh9.5512.2510.204.8946.740.54(4.59)(8.59)71.00,AUD/Sh11.5115.1612.295.8956.310.65(5.52)(10.35)85.94,KEY FINANCIAL METRICS,WACC(nominal),9.0%,Shares,1,852M,Underlying Ea
31、rnings(US$M)Free Cash Flow(US$M)-before debt&equity,10,3036,769,6,1344,812,13,94714,772,15,551-1,021,9,600-6,610,9,650-2,091,11,8122,066,11,7023,914,11,5053,249,10,5011,652,14,5794,126,15,2668,032,16,52011,188,Gearing(ND/E-%)ROE(%)ROA(%),172%45%15%,41%19%10%,7%27%21%,15%28%22%,25%18%8%,25%17%11%,20%
32、18%13%,14%16%12%,9%14%11%,7%11%10%,2%14%13%,-4%13%13%,-11%13%14%,Valuation(HD12),Iron Ore,56%PRODUCTION,Copper-refined(kt)Copper-mined(kt)Iron ore(mt)-attributable,322681148,412711166,393674179,334520192,311571195,342614204,342691226,333682268,325712322,295738355,295840387,295840391,295840395,Energy
33、6%,Iron ore(mt)-100%Coal-Hard&semi soft coking(Mt)Coal-Thermal(Mt)Alumina(Mt)Aluminium(Mt)Uranium(kt)Diamonds(Mcts)Gold(koz)Titanium dioxide feedstock(kt),19110.5150.18.24.16.420.85271,524,21610.4129.78.33.86.414.01,1671,146,23912.060.79.13.85.213.87141,392,24511.719.78.93.83.211.75761,442,25012.919
34、.510.03.44.015.02611,894,26915.421.811.22.84.126.74502,333,28916.422.311.62.83.526.64642,400,33717.724.311.82.94.626.74512,400,39719.127.012.13.14.626.74462,400,43723.728.312.83.14.626.84462,400,47127.229.814.03.14.626.84462,400,48128.931.414.13.14.626.94462,400,49033.833.514.23.14.626.94462,400,Dia
35、monds&Ind Min12%Copper15%,Aluminium11%,REVENUE(US$M),Revenue split(2012F),AluminiumCopperDiamonds&MineralsEnergy,22,2285,7483,8208,018,12,0136,2062,6186,709,15,2067,7823,0355,652,15,5827,6343,2207,327,15,7406,6273,9545,324,13,8788,0155,6895,101,13,8158,5176,8045,372,13,9338,1856,4175,569,13,7867,743
36、6,0235,751,14,3207,1265,5365,955,17,0589,1255,5727,168,17,5099,1765,7288,005,17,97210,2625,8879,151,EnergyDiamonds 10%&Minerals7%,Iron OreOthers(includes associates and JVs)Total,16,527-2,07754,264,12,5981,68141,825,24,02487756,576,29,909-3,13360,539,22,849-5,00949,485,23,365-4,73751,312,26,449-4,92
37、956,028,27,946-4,80757,244,29,681-5,00557,979,29,059-4,86157,136,32,137-5,60865,451,33,204-5,75167,871,34,310-5,89871,683,Copper12%,Iron Ore42%,CAPEX(US$M)Growth,AluminiumCopperDiamonds&MineralsEnergyIron OreTotal Growth CapexTotal Sustaining CapexTotal Capex,1,5495971,0056372,6196,4062,4228,828,796
38、2933304601,7813,6602,1635,823,4019261514961,7883,7612,0935,854,6982,3723851,0252,9356,9084,87612,011,1,2521,9576981,3553,5248,7865,47114,257,1,2001,6573007606,0529,9695,22315,423,9001,5273001,1005,7199,5464,88014,157,051701,0404,6106,1675,06711,235,01,01101,5404,1486,6985,68412,382,01,35402,5403,110
39、7,0046,12313,127,02,35603,0423,1658,5636,51715,079,073102,0441,6624,4376,68611,123,051201,0466392,1976,8479,044,Aluminium29%,EBIT split(2012F),EBITDA(US$M)AluminiumCopperDiamonds&MineralsEnergyIron OreOthers(includes associates and JVs)Total,3,9132,8601,2924,37010,212-79921,848,5933,4741,2092,7227,1
40、12-79914,311,2,4184,5036062,29916,605-45325,978,1,7633,3947032,23220,930-50128,521,8192,1541,2651,10213,607-1,51217,433,1,3243,9322,61660013,060-99320,538,1,5563,9023,6241,30414,669-96024,095,1,1163,5643,3141,63015,285-96023,949,1,0553,0182,9831,86115,795-96023,753,1,5422,5582,5541,91015,120-96022,7
41、25,4,1603,7752,6202,50416,906-96429,001,4,3093,8022,7002,80617,273-96829,921,4,4314,4482,7703,19317,647-97231,516,Energy5.8%,Iron Ore72%,EBITDA margins(%)AluminiumCopperDiamonds&MineralsEnergyIron OreTotal,18%50%34%55%62%40%,5%56%46%41%56%34%,16%58%20%41%69%46%,11%44%22%30%70%47%,5%32%32%21%60%35%,1
42、0%49%46%12%56%40%,11%46%53%24%55%43%,8%44%52%29%55%42%,8%39%50%32%53%41%,11%36%46%32%52%40%,24%41%47%35%53%44%,25%41%47%35%52%44%,25%43%47%35%51%44%,DiamondsCopper11%Minerals7%,Aluminium4%,Source:Company data,DB estimates,Deutsche Bank AG/Sydney,Page 3,10 October 2012M&M-Diversified ResourcesRio Tin
43、to LtdCost cutting,copper andtechnologyWhat was saidWe have noted over the years that the majority of companies and particularly the largeones do not try to overly cover their views and will usually express directly their viewsand likely actions.With this in mind,we paraphrase below a number of comm
44、entsmade during the London presentation:On shareholder returns:We returned cash earlier in the year when we hadsurplus and will do so when surpluses exist,we dont think we have a surplusat the moment given the quality of projects available.(Do not expect capitalreturns in the near term).On capital s
45、pend:We are no longer able to invest in all the value accretiveprojects that we have available.There will be no more capital approvals in thenear term.(expect project reviews and potentially some disgruntled divisionalheads note that the capex plans for this year remain at US$16bn,Rios shareUS$13.7b
46、n,we forecast US$14.2bn.Around US$5bn of iron ore mine capexstill needs to be approved for 2013,we forecast US$15.4bn for 2013).On capital curbs:We are pulling in the reins on capital,the wishlists from thesites are long in periods of excess cash and we think they can be trimmeddown without putting
47、the operations at risk(expect a reduction in themaintenance capital budget).On cost cutting:We have achieved cost savings of US$500m a year and areplanning further cost reductions.(Rio has a US$38bn cost base,of whichUS$14.5bn is in aluminium alone.Evaluation and exploration expendituretotaled US$1b
48、n in 1H and is the easiest place to start cutting,along with headoffice which is well underway).On acquisition approach:There are many pieces of undervalued cashflows outthere at the moment,but very few attached to the quality of asset that wewould like in our portfolio.Execution risk in M&A is enor
49、mous and has oftenresulted in failed deals(do not expect large M&A from Rio).On the Balance sheet:The balance sheet is in good shape and we intend tokeep it that way.We focus on balance sheet discipline and single A creditrating(Do not expect large M&A from Rio)On the portfolio.Small assets in the R
50、io portfolio must be able to grow to stayin the portfolio(Hence the planned sale of diamonds,Pacific aluminium andPalabora.Eleven assets are located in the low expandability,high cost quadrantare deemed marginal).On Copper.4-5 x as much copper is used in the generation of solar power as isused in co
