Jefferies recently released an equity research report on Rio Tinto PLC (RIO.US), focusing on the global mining giant's investment value, business portfolio, and risk-reward outlook. The core conclusion indicates that the stock's risk and reward are currently balanced, with its lithium business serving as a key growth engine, while it also faces multiple risks including strategic and geopolitical challenges. The firm assigned a "Neutral" rating with a target price of 5,788 pence per share.
A site visit to lithium mines in Argentina was summarized, where representatives participated in a tour of Rio Tinto's (RIO) Rincon and Fenix lithium assets and held meetings with local company representatives and Argentine government officials. This visit reinforced the firm's gradually increasing optimism regarding Rio Tinto's lithium business development vision. The view remains that this business segment allows investors to benefit from sustained increases in commodity prices, while expansion plans are expected to contribute significantly to profits in the medium term.
Capital expenditure is controlled, and beyond the committed $2.8 billion in CAPEX until fiscal 2029, the lithium division must compete for subsequent funding within Rio Tinto's overall investment portfolio. Should significant capital expenditure overruns occur, the specific countermeasures remain unclear. Although the division has planned growth projects beyond this timeframe, aiming to increase capacity from 200,000 tonnes per year of lithium carbonate equivalent (LCE) to approximately 370,000 tonnes per year LCE, the analysis suggests these projects are unlikely to advance without a substantive and sustained improvement in the lithium market.
Resin selection for the Rincon project is still progressing. The core of the direct lithium extraction (DLE) process involves matching the resin with the underlying brine chemistry. While the process flow was designed based on fundamental chemistry, the project continues to search for the optimal resin solution—a point that was somewhat surprising, considering the cascading impact this has on adsorption column parameters.
Integration work continues to advance. Following the completion of the Arcadium acquisition in March 2025, the integration of the Argentine lithium operations appears to be progressing smoothly, though it is not yet fully complete. Initial knowledge-sharing initiatives and synergy opportunities have been identified, with room for further integration to unlock additional value.
Is the Argentine economy on the rise? Meetings were held with the President of the Central Bank of Argentina, the Minister of Mining, the Undersecretary of Energy Resources, and other government officials. The core message conveyed was consistent: Argentina welcomes business investment and aims to achieve long-term national prosperity by strengthening the federal balance sheet, with one key pathway being to incentivize further development of domestic mining projects (for example, through the Mining Investment Growth Law (RIGI) and amendments to the Glacier Law). The cornerstone of this policy framework is maintaining political stability, which is expected to be supported by ongoing positive economic momentum. The firm was impressed by the opportunities in Argentina's mining sector—current public support for mining development stands at approximately 60%—but the country's turbulent political history must also be acknowledged. For a more comprehensive perspective, the analysis recommends consulting the views of internal Jefferies teams with broader Latin American experience.
Regarding the investment thesis and differentiated views, compared to market consensus, the firm is less pessimistic on iron ore and more optimistic on copper and aluminum. However, the analysis believes Rio Tinto's strategic, capital allocation, and geopolitical risks have recently increased, and the stock's current risk/reward trade-off is in a state of balance. The "Neutral" rating on Rio Tinto shares is maintained, primarily based on two factors: the company's currently relatively low free cash flow (FCF), and persistently high political risks in Guinea and Mongolia. Nonetheless, the analysis also indicates the stock possesses long-term investment value.
Based on a net present value (NPV) model, the valuation for Rio Tinto's UK-listed shares (RIOLN) is 5,788 pence per share. The report provides target prices under three scenarios: Under the base case, anticipating a 12-month recovery after short-term commodity volatility, targets are RIOLN 5,700 pence (-8%), RIOAU A$143/share, and RIOUS $76/share. The upside scenario (strong global economic recovery) targets are 7,000 pence (+13%), A$175/share, and $90/share, respectively. The downside scenario, premised on weak Chinese steel demand and a global economic downturn, sees targets fall to 3,750 pence (-39%), A$100/share, and $52/share.
Key catalysts influencing the share price include positive factors such as better-than-expected Chinese iron ore demand and improved operational performance, as well as negative risks including weak global growth and production declines due to operational issues.
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