Analysts at RBC Capital Markets have given Rio Tinto stocks an
outperform recommendation on the company's strong copper growth
"The supply side for copper remains tight given falling grades,
infrastructure constraints and smaller developers being
challenged to raise finance," the analysts said in a note,
following a presentation given by Andrew Harding, ceo of Rio
Rio is focusing on existing projects, they added, but it is not
ignoring other opportunities, including those in Africa.
Organic growth includes focus on developing the first phase at Oyu Tolgoi in
, life-of-mine extension studies at Kennecott Utah
Copper, and a $1.4 billion approval for two projects at
Escondida in Chile.
The company is also looking to increase production at
Northparkes in Australia, and progressing development at
Resolution in the USA and La Granja in Peru, the analysts said.
At Oyu Tolgoi, the key challenge will be achieving a stable
power supply from China by July 2013, so that the concentrator
in can be started up in the third quarter.
"Harding appears confident the supply agreement will be
completed in time. Thereafter the project has four years to
construct its own coal-fired 450MW station," the analysts said.
At Kennecott, in the long-term, there are plans for an
underground mine, they added. The first step will be the North
Rim Skarn development, which contains 20 million tonnes of
copper at 3.6%, and 1 million oz gold. A $164 million
pre-feasibility study has already begun.
At Northparkes, a $114 million pre-feasibility study has been
approved, to increase the operation's output to 150,000 tpy
with a 20-year mine life. First production is expected by 2015,
Rio's land exchange at Resolution is now before the US
Congress, and the company has approved a starter mine at La
Granja, with a possible start-up and cathode production in
"Rio is [also] developing new processes including tunnelling
and copper recovery. It is also using Northparkes as a
"block-cave" school to develop in-house skills for its
underground mines," the analysts said.
There remain, however, some concerns over costs, they added.
Rio has said there are worries over inflation in capital and
The company highlighted the benefit of by-product
credits, such as gold at Oyu Tolgoi and Grasberg, which will
help to keep Rio at the lower end of the cost curve.
"While iron ore is absorbing the bulk of Rio's capex and
accounted for 73% of 2011 [earnings before interest, taxation,
depreciation and amortisation], copper growth remains strong,
with growth to [about] 1 million tpy, and gold to 1 million oz
per year by 2015," the analysts said.
"Given a likely tight supply situation, we see Rio's copper
division underpinning our outperform recommendation," they
Rio Tinto's shares were trading at 3,466 pence each on the
London Stock Exchange as of 15:27 BST, down 1.07% compared with
the close of trading on Friday April 27.