UBS analysts expect Rio Tinto’s stock price to fall to $ 79 within a year due to rising production costs and a weaker Australian dollar.
This would represent a drop of around 17% from the current price of $ 95.25, and bring the stock price back to the lows reached in the March 2020 sell-off.
The UBS team has a “sell” recommendation on the stock, saying “iron ore still looks fragile with the build up of port stocks.”
Following an analyst call hosted by Simon Trott of Rio, the head of its iron ore operations, UBS analysts said demand for iron ore would remain stable in 2022, but costs production would be higher.
“In terms of the market, (Rio) sees potential for customers to restock in March 2022 after the Winter Olympics and expects underlying demand to remain robust in 2022 with the Chinese government taking over. measures to avoid a hard landing of the property but also to not step back on its carbon targets, ”the UBS team wrote in a note to clients.
Rio said production costs have increased by $ 4 per tonne since 2019 to reach $ 18.50 per tonne, mainly due to currency fluctuations, the tightening labor market and rising costs of diesel and gasoline. ‘energy.
Capital spending would remain at around $ 3.5 billion a year for the group, with Morgan Stanley analysts pointing to the need for replacement mines.
“Gudai-Darri should replace the exhaustion of Brockman and Yandi; the next wave of replacement will be through the development of Brockman Syncline 1, Bedded Hill Top and Hope Downs 2, and Western Range, which would arrive around the middle of this decade, ”the Morgan Stanley team wrote in a note to clients. . They have a price target for London-listed stocks of £ 48.80, up from a closing price of £ 46.21 on Monday.
“The relative size of these expansions is comparable to that of Gudai-Darri in terms of size and investment. The company reiterated its need to spend about US $ 2 billion ($ 2.8 billion) per year on replacement mines. Beyond the current pipeline, Rio Tinto is considering the development of Phase 2 of Gudai-Darri to rebuild long-term mining capacity. ”
Analysts noted that mine approvals will have longer timelines due to new heritage laws introduced after the Juukan Gorge fiasco.
The UBS team estimates that dividends per share will be US $ 12.13 for the year ending December 31, 2021, thanks to windfall profits. But dividends will drop in subsequent years to US $ 5.70 in 2022, then US $ 4.97, US $ 5.31 in 2024 before rising to US $ 6.42 the following year.