RIOTINTOLTDRIO.AXCAPITALALLOCATIONHELDTOACCOUNT0118

1、kaan pekerrio tinto ltd12deutsche bankmarkets researchratingbuyaustralasiaaustraliacompanyrio tinto ltddate17 january 2013breaking newsm&m - diversifiedresourcesreutersbloombergexchange tickerprice at 17 jan 2013price target - 12mth52 week range (aud)64.6081.9072.30 - 48.63rio.axrio auasxrioall

2、ordinaries4,774capital allocation held to accountpaul youngresearch analystus$14b of writedowns - tom albanese and doug ritchie to leave rio.rio has announced it is impairing us$14b post tax with its 2012 results(us$10-11b aluminium, us$3b coal mozambique and 0.5b other). thefrank release also annou

3、nced that tom albanese and doug ritchie would bestepping down effective immediately, would not be taking 2012 or 2013bonuses and would be forfeiting outstanding deferred bonuses. the boardmessage to management is clear. do not ask for investment capital unlessyou can deliver returns. sam walsh (iron

4、 ore ceo) has been announced asceo successor. somewhat long-awaited, this heralds the potential for a furtherimprovement in capital allocation. we reiterate our buy rec.us$14b is a larger write-down than expected, but in line with valuation.rio announced in its november strategy review that year-end

5、 carrying valuereviews would likely result in asset value revisions us$14b is more thanexpected so soon. us$10-11b from aluminium will lower its carrying value(+61) 2 8258-2587paul-rob cliffordresearch analyst(+44) 20 754-research analyst(+61) 2 8258-key changesfrom us$30.5b to us$19b in line with o

6、ur valuation of us$18.2b. while thewritedown is big, it is worth remembering that the division contain includeworld class assets including alma, isal, qal, weipa and sohar among others.the us$3b coal mozambique writedown will bring this valuation to aroundprice targetebit margin(fye)82.80 to 81.90 1

7、9.6 to 22.2 -1.1%13.2%us$0.4b, under our previous us$1.3b valuation. we have extended the timeline on this project based on the comments today (now us$0.37b).price/price relativea change in capital allocation strategy is a key catalyst.we have highlighted in a series of notes over the last 18 months

8、 the need for achange in the capital allocation strategy of the miners. todays rapid boardresponse to a second misallocation of capital (riversdale after alcan) is thefirst step in this change in our view with very clear message that capitalspending will be subject to increased scrutiny (the next st

9、ep will be returning9080706050401/117/111/127/12the unspent capital to shareholders. sam walsh is a good ceo replacement inour view; he is already on the board, and accountable for the largest part ofall ordinaries (rebased)rios earnings and growth. we expect him to deliver a series of positiveannou

10、ncements in coming months including; early delivery on iron ore growth,the oyu tolgoi ramp-up and details on the cost out program.valuation/riskperformance (%)absoluteall ordinaries1m1.73.43m15.34.912m-1.711.6our valuation is set in-line with our a$81.9/sh (from 82.8/sh) npv (assumes a9.0% wacc).key

11、 risks include weaker commodity prices and higher capex.forecasts and ratiosyear end dec 31net profit (usdm)eps (usd)% changeper (x)2010a13,9017.070.0%9.82011a15,5498.060.0%9.82012e8,8044.740.0%14.42013e9,5075.120.0%13.32014e10,7515.79-0.0%11.8source: deutsche bank estimates, company datapre-excepti

12、onals/extraordinariesmultiples and yields calculations use average historical prices for past years and spot prices for current and future years, except p/b which usesthe year end close_deutsche bank ag/sydneydeutsche bank does and seeks to do business with companies covered in its research reports.

13、 thus, investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors shouldconsider this report as only a single factor in making their investment decision. disclosures and analystcertifications are located in appendix 1. mica(p) 0

14、72/04/2012.0060322817 january 2013m&m - diversified resourcesrio tinto ltdmodel updated:17 january 2013fiscal year end 31-dec2009201020112012e2013e2014erunning the numbersfinancial summaryaustralasiaaustraliam&m - diversified resourcesrio tinto ltddb eps (usd)reported eps (usd)dps (usd)bvps

15、(usd)valuation metricsprice/sales (x)3.562.750.4522.371.87.077.241.0829.732.58.063.021.4528.012.54.74-2.401.5321.621.695.791.7329.172.1reuters: rio.axbuyprice (17 jan 13)target price52 week rangemarket cap (m)bloomberg: rio auaud 64.60aud 81.90aud 48.63 - 72.30audm 119,643p/e

16、(db) (x)p/e (reported) (x)p/bv (x)fcf yield (%)dividend yield (%)ev/salesev/ebitdaev/ebit11.72.626.014.4nm3.1nm13.113.310.411.89.2usdm 126,438income statement (usdm)company profilerio tin

17、to 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. ri

18、o tintosmanagement 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 performance908070salesebitdaebitpre-tax profitnet incomecash

19、 flow (usdm)cash flow from operationsnet capexfree cash flowequity raised/(bought back)dividends paidnet inc/(dec) in borrowingsother investing/financing cash flowsnet cash flowchange in working capital41,82513,2369,8097,8604,8729,212-5,3883,82414,877-876-16,4201,6433,10523455,17123,76720,33020,4911

20、4,23818,191-4,59113,60092-1,754-9,3603,1375,731-18560,53728,18224,36513,2145,82620,030-12,3357,695-5,504-2,2364,208-4,441-6101,77850,56615,40811,232-1,881-4,4659,450-14,164-4,714105-3,0173,904327-2,2621,63856,94119,64814,62713,9609,50715,201-14,351850-2,894-3,0001,000-4,044-37060,20921,93416,57715,8

21、6910,75117,765-13,3554,410-3,067-3,0001,000-658-607balance sheet (usdm)5040jan 11apr 11 jul 11 oct 11jan 12apr 12 jul 12 oct 12cash and cash equivalentsproperty, plant & equipmentgoodwill4,23345,80314,2689,94856,02415,2969,67064,9678,1876,26968,3723,2462,22676,7023,2461,56883,7003,246rio tinto l

22、tdmargin trends48444036all ordinaries (rebased)other assetstotal assetsdebtother liabilitiestotal liabilitiestotal shareholders equitynet debt32,93297,23623,00228,30951,31145,92518,76931,134112,40214,34132,78747,12865,2744,39336,721119,54518,47741,78560,26259,2088,80730,529108,41621,97536,30758,2825

23、0,13415,70631,514113,68718,97537,89356,86856,81916,74931,869120,38215,97539,73955,71464,66914,407key company metrics242009101112e13e14esales growth (%)db eps growth (%)nmna31.998.69.714.1-16.5-5.713.1ebitda margingrowth & profitability40302010ebit margin30252015payout ratio (%)ebitda

24、margin (%)ebit margin (%)roe (%)net debt/equity (%)net interest cover (x)16.331.623.519.540.912.114.943.136.827.26.733.147.946.640.228.014.963.8nm30.522.219.031.363.731.434.525.721.929.554.829.736.427.521.422.353.80-10105dupont analysis-200ebit margin (%)23.536.827.509101112e13e14ex asse

25、t turnover (x)x financial cost ratio (x)0.91.01.01.01.01.0solvency5040302010sales growth (lhs)roe (rhs)70605040302010 x tax and other effects (x)= roa (post tax) (%)x financial leverage (x)= roe (%)annual growth (%)x nta/share (avg) (x)= reported epsannual growth (%)15.1na

26、18.22.75na0.784.426.07.242.110.5-62.328.73.02-58.3-0.4-3.92.5-9.6na24.9-2.40na21.9na23.35.12na21.4-2.527.15.7913.100source: company data, deutsche bank estimates09101112e13e14enet debt/equity (lhs)paul young+61 2 8258-2587page 2net interest cover (rhs)paul-deu

27、tsche bank ag/sydney17 january 2013m&m - diversified resourcesrio tinto ltdfigure 1: rio tinto operational and financial summaryfx/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)uranium

28、(us$/lb)rutile (us$/t)cy10a0.921371220.993.439119561589cy11a1.031811681.094.00122289631,045cy12f1.041361240.933.61101208532,293cy13f1.041371250.963.6994178651,300cy14f1.011271151.003.40102185701,750cy15f0.971221101.003.29100180681,900cy16f0.921151031.033.1598173651,750cy17f0.87107951.073.0198165631,

29、300cy18f0.82100881.102.8698158731,300cy19f0.80106921.173.1799176751,522cy20f0.80109941.203.24101180761,560npv (hd12)aluminium (excl. pac al)copperdiamondsmineralsenergyiron orepacific aluminiuminvestmentscorporate and other operationsus$m14,03520,4372,55817,4967,70886,5314,1264,000(14,957)us$/sh7.58

30、11.031.389.454.1646.722.232.16(8.08)aud/sh9.1313.741.6611.385.0156.292.682.60(9.73)net debt(16,749)(9.04)(10.90)key financial metrics940310921112111207211593112221373314704 total126,23768.1681.89underlying earnings (us$m)16,11215,88811,2459,50710,75110,66511,58211,38010,96913,42114,671operating cash

31、 flow (us$m)18,19120,0309,45015,20117,76518,22119,28819,45119,35421,69222,706 wacc (nominal)9.0%shares1,852mcapex (incl. exploration) and divestments (us$m)dividend (us$m)acquisitions (us$m)free cash flow (us$m) - before debt & equitynet debt (us$m)gearing (nd/e - %)roe (%)roa (%)(804)(1,754)(90

32、7)14,7264,3937%36%24%(12,682)(2,236)(6,133)(1,021)8,80715%31%23%(11,346)(3,017)(1,491)(6,404)15,70631%27%13%(13,351)(2,894)-(1,044)16,74929%25%13%(12,355)(3,067)-2,34214,40722%23%14%(12,493)(3,279)-2,44911,95917%21%14%(11,033)(3,446)-4,8097,1508%19%14%(9,491)(3,618)-6,3428081%16%14%(10,524)(3,799)-5

33、,031(4,222)-4%14%13%(9,842)(3,989)-7,861(12,084)-11%16%15%(11,390)(4,188)-7,127(19,211)-16% valuation (hd12)15%16%eps (usc)eps change (%)931156%897-4%685-24%578-16%63610%6421%6897%671-3%639-5%78823%8579%iron ore57%eps cagr (%) - off cy12 earnings-16%-4%-2%0%0%-1%2%3%dps (usc)payout ratio (%)10813%14

34、517%15325%16131%17328%18132%19030%20033%21035%22030%23129%productionenergycopper - refined (kt)3933342793033032952952952952952955%copper - mined (kt)iron ore (mt) - attributableiron ore (mt) - pilbara (100%)coal - hard & semi soft coking (mt)coal - thermal (mt)67417922412.060.752019223111.719.75

35、4819923911.420.660720624914.522.860523127315.922.362026831316.023.163731336416.023.372934039416.223.481036541916.423.781036841916.423.781037841916.423.0minerals11%diamonds2%copper13%pacificaluminium3%aluminium(excl. pac al)9%alumina (mt)aluminium (mt)uranium (kt)diamonds (mcts)gold (koz)titanium dio

36、xide feedstock (kt)13.87141,3911.75761,4413.32301,5958.02402,09026.62512,40026.72512,40026.72452,40026.82452,40026.82452,40026.92452,40026.9245 revenue split (2012f)2,400copper eq production (mt)cop

37、per eq cagr (%)7.47.07.07.68.0%7.96.2%8.67.2%9.37.4%9.87.0%10.46.8%10.55.9%10.75.4%energy10%revenue (us$m)aluminiumcopperdiamondsmineralsenergyiron oreothers (includes associates and jvs)total15,2067,7826822,3535,65224,02487756,57615,5827,6347272,4937,32729,909-3,07960,59310,1596,1387292,8115,31423,

38、6761,73050,55510,8758,3059313,7655,26625,0642,73456,94110,8297,9521,1114,7535,29727,1643,10360,20911,0178,4131,1244,9215,43527,9422,68461,53511,4407,9541,1674,7925,45930,2732,66463,75111,7669,2121,1794,3965,50430,1912,85065,09812,0779,9431,2074,4075,79729,8582,98766,27712,75511,1221,2434,9756,30331,

39、6172,69470,70813,07411,8591,2805,1096,40633,1012,63373,461minerals7%diamonds2%copper15%aluminiumiron ore46%capex (us$m)growth20%aluminiumcopperdiamonds4019261516982,3723859061,9766981,2001,5543009001,339300061700335002040040100408001,8670 ebitda split (2012f)mineralsenergyiron oretotal growth capexs

40、ustaining capextotal capex04961,7883,7612,0935,85401,0252,9356,9084,87612,01101,3553,5248,4595,98814,44705105,4619,0255,32614,58206754,8958,1095,24613,08604906,4237,5304,96312,4930905,2295,6545,37911,0330903,3683,6615,8309,49106413,3904,4326,09210,52401,5431,6623,6146,2289,84202,5456395,0516,33911,3

41、90iron ore74%ebitda (us$m)aluminium2,4181,7639151,0601,3051,1611,8262,1912,5353,0693,216copperdiamondsmineralsenergyiron oreothers (includes associates and jvs)4,5031584482,29916,605-4533,3941805232,23220,930-5011,9342449321,01114,427-9833,6524351,42062314,473-7663,5376152,0911,18415,076-7574,228615

42、2,2961,52615,006-1,1673,7726592,1841,73216,130-1,1974,4396721,8481,85015,608-1,2294,4857101,9012,00314,675-1,2615,3117402,4062,36715,931-1,2945,9167582,4722,42716,738-1,328energy5%minerals4.8%diamonds1%copper10%aluminium5%total25,97828,52118,48120,89823,05023,66525,10525,38025,04828,53130,199ebitda

43、margins (%)aluminiumcopperdiamonds16%58%23%11%44%25%9%32%34%10%44%47%12%44%55%11%50%55%16%47%56%19%48%57%21%45%59%24%48%60%25%50%59%mineralsenergyiron oretotal41%69%46%30%70%47%19%61%37%12%58%37%22%55%38%28%54%38%32%53%39%34%52%39%35%49%38%38%50%40%38%51%41%source: deutsche bank forecasts/estimatesd

44、eutsche bank ag/sydneypage 317 january 2013m&m - diversified resourcesrio tinto ltda big cut.to carrying value and the executive teamthe us$14b writedown includes us$10-11b for the aluminium division includingpacific aluminium (which rio had stripped out of the division in order to commence asal

45、e process). the writedown comes after a series of writedowns over the last 5 yearsshown in the table below.our estimated remaining carrying value for the division of us$19.5b is in line with ournpv of 18.2b. we have not made any adjustments to our operating assumptions for thedivision as a result of

46、 todays announcement.figure 2: movement in aluminium carrying valuerioalcan combined20062006200720082009201020112012rio tinto aluminiumalcanus$bnus$bn3.6book valuegoodwillcapital expendituredepreciationoperating assetsus$bnus$bnus$bnus$bnus$bn3.620.720.724.819.10.6-0.643.824.813.

47、02.8-1.935.722.613.01.7-1.636.025.013.01.3-1.638.3-1.630.018.50.02.1-1.119.5asset salesus$bn-3.2other adjustnmentsus$bn1.32.3asset writedownsus$bn-6.1-1.2-8.9-10.5source: deutsche bank estimates/forecastsrio tinto completed its us$3.69bn acquisition of riversdale mining in july 2011. aus$3

48、b writedown represents the majority of the carrying value and leaves an estimatedcarrying value of us$0.4bfigure 3: movement in carrying value for mozambique coal20112012book valuegoodwillcapital expendituredepreciationoperating assetwrite downus$bnus$bnus$bnus$bnus$bnus$bn2.830.530.170.003.360.40.0

49、00.29-0.010.65-3.00source: deutsche bank forecasts/estimatesa key issue for rio appears to have been its desire to replicate its australianinfrastructure in africa, this has not been possible in guinea with the simandou projectand now appears not to be possible in mozambique the solutions are likely

50、 to besubstantially smaller.as a result of this release, we have pushed our expectations for the mozambiquedevelopment in next decade which has lowered our npv to us$0.37b.page 4deutsche bank ag/sydneyrd17 january 2013m&m - diversified resourcesrio tinto ltdre-cutting mozambique coalin our “the

51、big 5” note dated the 23 of april 2012, we identified the development ofmozambique as one of the big development projects for rio tinto. while we highlightedinfrastructure development as a key risk, we took the view that the company would beable manage the issues. in todays announcement, the company

52、 states that this is notthe case, specifically:“in mozambique, the development of infrastructure to support the coal assets is morechallenging than rio tinto originally anticipated. rio tinto sought to transport coal bybarge along the zambezi river, but this option did not receive formal approvals.t

53、hese infrastructure constraints, combined with a downward revision to estimates ofrecoverable coking coal volumes on the rtcm tenements, have led to a reassessment ofthe overall scale and ramp up schedule of rtcm, and consequently to the impairmentannounced today.”we have now pushed our expectations

54、 for the project out 4 years with significant ramp-up not until next decade.a quick review of the projectwith significant capex due to be spent on perceived lower risk iron ore growth in thepilbara, rio tinto took the view to be spend some of its cash on some higher riskprojects that create signific

55、ant future options. mozambique coal is one of these. riotinto completed its us$3.69bn acquisition of riversdale mining in july 2011. it pickedup over 2.5bt of coal resources, but the size of the resource will likely be multiples ofthis number.the resource base has potential to support a major low co

56、st 40mtpa+ export coaloperation by 2025 from 2 deposits split approximately as 10mtpa from the bengadeposit and 30mtpa from zambeze. based on metallurgical testwork the product mix isexpected to be 60% coking coal and 40% thermal coal. ultimately, rio believes thisbasin could potentially support a 1

57、00mtpa export operation (combined from allproducers). the coking coal quality will is expected to be excellent with coke strengthnumbers (csr) of between 67 and 72, broadly in-line with high quality coking coals inthe bowen basin however, the expected coking coal yield is low at c. 35%. thermalcoal

58、yields are expected to be marginally higher at 50-60% delivering an overall coalyield of approx 40%. partly offsetting the low yields will be a low strip ratio of less than6:1. this should deliver an average operating cost across both projects of aroundus$80/t of product coal, placing mozambique coa

59、l in the middle of the global costcurve.the biggest hurdle to ramping up production has proven to be the significantinvestment in infrastructure due to limited rail and port capacity and after today, a cleardifficulty in getting government approvals.we had forecast total investment of us$13.7bn for

60、rio tintos share. the potential40mtpa coking and thermal coal project returned a 12.3% irr on our base caseassumptions (us$82/t thermal coal and us$160/t coking coal) excluding the us$3.7bnacquisition cost. (so lower the cost of capital from the start). capital escalation andproject delays since april last year had led us to lower our valuati