In a Dec. 21 research note, BMO Capital Markets analyst Edward Sterck reported that Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) closed on the sale of its 40% interest in Grasberg for $3.5 billion through a series of transactions with the Indonesian government and Freeport McMoRan, and that the sale could result in increased shareholder returns.
Were Rio Tinto to return all of the proceeds to shareholders, via a special dividend or another share buyback program, Sterck noted, it would increase the 2019 return to about 11.3% from 7%, as estimated by BMO. This compares to the 12% expected at the end of 2018. The analyst pointed out that the company already has significant share buyback underway, which would account for about 30% or US$1.8 billion of that projected 7% return in 2019.
Rio Tinto, however, may opt to use some or all of the new funds for another purpose, such as building up its treasury for acquisitions or capital projects, Sterck highlighted. For one, it may "look to add copper assets through acquisitions."
The company will announce its intent for the US$3.5 billion when it reports its full year 2018 financial and operating results on Feb. 27, 2019.
BMO has an Outperform rating and a £46 per share target price on Rio Tinto, whose stock is currently trading at around £37.62 per share.[NLINSERT]
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Disclosures from BMO Capital Markets, Rio Tinto, December 21, 2018
We, David Gagliano and Edward Sterck, hereby certify that the views expressed in this report accurately reflect our personal views about the subject securities or issuers. We also certify that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Rio Tinto.
Disclosure 6C: Rio Tinto is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 19: BMO Nesbitt Burns Inc. ("BMO NBI") is acting as financial advisor to China National Uranium Corporation Limited. in connection with its proposed acquisition of 68.62 per cent stake in Rossing Uranium Limited from Rio Tinto. BMO NBI will be paid a fee contingent on the successful completion of the transaction. BMO NBI follows information control procedures which prevent its research analysts who are issuing research from having access to non-public information received by BMO NBI's investment banking personnel in connection with the transaction. Accordingly, it is possible that individual employees at BMO NBI may have material non-public information or opinions which are not included in, and may not be consistent with, the information and advice in this research report.
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