Credit Suisse says "volume forecasts downgraded, but earnings up
on new price deck; Raising Estimates"
"Rio Tinto has reported DecQ12 IOC sales of 3.83mt and
production of 3.91mt, both being disappointing relative
expectations which sat closer to 4.5mtpa. Full year CY12 sales of
14.1mt was only around 72% of 'nameplate' capacity which increased
from 18 to 22mtpa during the year (averaging say 20). Our earnings
changes reflect 1) updated DecQ12 volumes, 2) the latest house
price deck for iron ore (CY13 now C$120/t from C$111/t rel spot at
US$155/t), 3) higher capex forecasts for 2013/14 following recent
discussions with the company and 4) lower utilisation factors and
hence sales expectations for CY13 and beyond."
"LIF.TO will report its DecQ financials in February, at which
time we will be able to derive realised pricing and cash costs. At
this stage we expect CY2012 EPS of C$1.52/sh (rel. Consensus
Key positives: "Rio Tinto has made no change to its previous
guidance on IOC's 23.3mtpa expansion timing for MarQ13. Areas of
concern: another disappointing reported sales volume sees us
downgrade utilisation factors for future periods. Admittedly 2013
was a challenging year, and the 72% utilisation factor for 2012 was
partly a consequence of this, but the 90% we had previously been
using for forecasts seems increasingly optimistic and we have
reduced it to 85% (i.e. name plate capacity x 85% = reported
"No change to C$33/sh target price or NEUTRAL rating, both of
which are based on the house view of iron ore pricing (CY13
US$120/t). On a spot (US$155/t) basis CY13 EPS would go from
C$2.60/sh to C$4.15/sh."
Estimates: "We are raising 2013/2014/2015 EPS estimates to
C$2.64/C$2.35/C$2.00 from C$2.03/C$1.53/C$1.37, respectively."