Sector: Basic Materials
By: Rebecca Anderholm, Lachlan Fogarty & Markham Stayton Industry: Steel & Iron NYSE: RIO Objective: To maximize total shareholder return by sustainably finding, developing, mining and processing natural resources.
Third largest mining co. in the world Highly diversified commodity interest Global operation presence spanning 6 continents (40 countries) Strong financial indicators Positive macroeconomic outlook
Current Price 52 Week Range Market Cap EV P/E (TTM) P/S (TTM) P/B (MRQ) EV/EBITDA
$73.61 $39.30-$76.67 $144.43B $157.40B
15.92 3 3.17 9.4
Recommendation: BUY 900 shares @ $73.61 for a NAV of $66,249
*Source: Yahoo! Finance 2/14/11
Table of Contents
Qualitative Analysis Company Overview Principal Product Groups Management Commitment to Sustainability Recent News Brief History of Acquisitions Analyst Opinion SWOT Analysis Macroeconomic Analysis Industry Analysis – Commodity Outlook Competitors Competitive Advantage Quantitative Analysis Financial Ratio Analysis Pro Forma Income Statement Valuations P/E Valuation P/S Valuation P/B Valuation EV/EBITDA Valuation DCF Spreadsheet Valuation 3 Stage H-Model Valuation Target Price Conclusions Conclusion Recommendation Appendix Sources 32 33 34 38 18 22 24 24 25 26 27 29 31 31 3 4 5 6 7 8 9 10 13 13 16 18
The Rio Tinto Group is a top-tier global miner with about 60,000 employees in over 40 countries. With roots that date back to 1873, the Rio Tinto Group utilizes a dual listed companies structure in which it is composed of two companies that operate as a single entity under a common board of directors. The two companies, while under the same corporate governance, have two groups of shareholders. Rio Tinto plc (RIO) is offered on the New York and London stock exchanges, while Rio Tinto Limited (RIO.AX) is offered on the Australian stock exchange. With operations spanning six continents (See Figure 1), RIO hosts a diversified product portfolio including aluminum, copper, diamonds, minerals, energy, and iron ore. Major operations are located in Australia and North America, where 85% of the value of RIO’s assets reside. A focus on quality of mining opportunities, a quest to maintain low-cost facilities, and a commitment to sustainable development and employee safety are all key factors that underlie the decisions made by RIO’s capable management team. With these goals in mind, RIO’s vision is to become the global mining leader. Figure 1: Global Operations by Product 2
“Our strategy is to invest in and operate large, long term, cost competitive mines and businesses, driven not by choice of commodity but rather by the quality of each opportunity.”
“Our vision of being the global mining leader means maintaining or achieving sector leadership, including operational excellence, sustainable development, exploration and innovation.”
Principal Product Groups
Aluminum (27% of 2009 Gross Sales Revenue)
Rio Tinto Alcan is a worldwide leader in the production of this light metal. With technologically advanced smelters that produce aluminum at some of the lowest costs in the industry, RIO has been praised for its superior technology in mining high quality bauxite as well as its refining practices, which are powered mostly (64%) by hydroelectricity, a clean and renewable source of energy.
Copper (14% of 2009 Gross Sales Revenue)
The Copper group of RIO benefits from the diverse products that utilize this particular metal, with copper having major uses in the construction, building, and electrical industries. With the development of three of the globe’s largest new copper projects on its agenda, RIO is positioned to benefit from rising copper prices in 2011.
Diamonds & Minerals (6% of 2009 Gross Sales Revenue)