Rio Tinto has been given a favourable write-up by analysts at Deutsche Bank for the first time in two years.
Worries over iron ore prices, ESG policies and the mining giant’s strategy overall have knocked 20% off its value from its high this year, but the fundamentals leave the business well underpinned suggests the bank.
Deutsche Bank has also cut its forecast for iron prices this year to US$110-115t from US$120t, noting prices have fallen more sharply than anticipated due to a disappointing recovery in China and global manufacturing/industrial weakness, but sees scope for a recovery.
“While a sharp US recession or further financial stress are downside risks, we remain of the view that when the cycle turns back up prices should rebound sharply back towards incentive levels due to low inventories and inelastic supply.”
In terms of Rio, Deutsche Bank adds: “We see attractive value underpinned by a high quality, cash generative business,” said the note, “with annual free cash flow of around US$9bn over the next three years supporting a divided yield through the cycle of more than 7%”.
The bank upgraded its rating to ‘buy’ from ‘hold’ with a new target price of 6,200p from 6,000p.