In a July 28 research note, BMO Capital Markets analyst Alexander Pearce reported Rio Tinto Plc's (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) "strong" H1/21 results and recent funding.
Rio Tinto was expected to generate strong cash flow in H1/21, "and it didn't disappoint," Pearce noted. This was shown, for one, through the company's various EBITDAs. The company's overall EBITDA during 2021's first half was US$21 billion (US$21B), a 118% increase over H1/20 and consistent with BMO's forecast.
Group and divisional EBITDA were in line with BMO's estimates, too. Pilbara Iron Ore reported EBITDA of US$16.1B. Copper EBITDA came in at US$2.0B, aluminum at US$1.9B and minerals at US$1.4B, compared with US$2.1B, US$1.9B and US$1.4B, respectively.
Also proof of a strong cash flow, Pearce highlighted, was Rio Tinto's beat in terms of interim dividend. At US$9.10B, or US$5.61 per share, it was 33% higher than expected and represented a 13% annualized yield.
"This represents a payout ratio of 75% of underlying earnings and well above its normal policy of 40–60%," Pearce wrote. The dividend likely set "a positive precedent for shareholder returns from its peers."
Finally, Rio Tinto had US$3.1B in net cash at the end of H1/21.
"Overall, [this was] a good set of results," Pearce determined.
In other news, Pearce noted, Rio Tinto designated US$2.4B in funding for its Jadar lithium-borate project in Serbia. The few details available now indicate target production at the project is 58,000 tonnes per annum (58 Ktpa) of battery-grade lithium carbonate and 160 Ktpa of boric acid. Rio Tinto estimates production would start in 2026 and reach nameplate capacity in 2029.
BMO has an Outperform rating and a £72.50 per share target price on Rio Tinto, the stock of which is now trading at about £62.81 per share.[NLINSERT]
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Disclosures from BMO Capital Markets, Rio Tinto, July 28, 2021
We, David Gagliano and Alexander Pearce, 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.
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 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Rio Tinto.
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