Rio Tinto Ltd (ASX:RIO) (LSE:RIO, ASX:RIO, OTC:RTNTF)'s earnings could be aided by an unexpected tailwind - the gold by-product from its copper production.
So says Benrenberg, which has relooked at its estimates with the sky-high price of the precious metal front of mind.
While Rio's portfolio has traditionally been dominated by iron ore, which comprises 72% of its 2024 projected EBITDA, the company's copper division is expected to increase its contribution significantly, the investment bank notes.
This rise — from $2.4 billion in 2024 to an estimated $4.9 billion by 2030 — is partly due to the inclusion of gold as a by-product in copper mining. This aspect has been somewhat overlooked but is now recognised as a potential driver of additional revenue and cost efficiencies, Berenberg said in a note to clients.
Rio operates three key copper assets: a 66% stake in the Oyu Tolgoi mine in Mongolia, a 30% stake in Chile's Escondida mine, and full ownership of the Kennecott mine in the US.
All three produce gold as a by-product, which, given the near-all-time high gold prices, offers a "positive kicker" for Rio's EBITDA and a tailwind for C1 costs—these are the direct costs of mining and processing ore, calculated net of by-product credits.
For 2024, Berenberg forecasts a gold production increase from 311,000 ounces to 429,000 ounces, driven by Oyu Tolgoi transitioning to higher-grade materials. This boost in production is expected to contribute significantly to lowering the unit costs at Rio's mines.
Berenberg maintains a 'buy' rating on Rio with a price target of 5,900p, citing the stock’s attractive valuation and the potential for increased profitability driven by strategic management of its copper and gold resources.
In afternoon trading the stock was up 3% at 5,493p.