General | Feb 05 2006
The market remains uncertain about the outcome of price negotiations for iron ore contracts this year, but there is little uncertainty over the ongoing positive outlook for the iron ore market generally.
With such a background Intersuisse has maintained its Buy rating on Rio Tinto (RIO), noting the company’s 50% stake in the Hope Downs iron ore project gives the company the opportunity to expand its Pilbara iron ore province.
Despite being a diversified resource company the contribution Rio Tinto’s iron ore assets make to group earnings remain substantial, the broker estimating it generated 27% of group revenue and 35% of underlying earnings in 2005, while accounting for 28% of total group operating assets.
Where the Hope Downs project fits in nicely in the broker’s view is in its proximity to existing infrastructure, which both reduces the cost of commencing operations as well as minimising potential delays in bringing the project on stream.
Also positive in the broker’s view is the fact the company moved quickly to lodge the necessary development applications, meaning work can commence as soon as approval is received.
While not expecting the company to match the growth rates of the past two years, on Intersuisse’s estimates Rio Tinto should record EPS growth in excess of 25% in 2006.
In the FN Arena database the consensus remains positive towards the company, with six Buy ratings compared to three Hold recommendations and one Reduce rating.
The last closing price for RIO was $79.71.
