Australia | 10:30 AM
The new Rio Tinto CEO’s updated targets for earnings, volumes, costs and capex have been met with mixed responses from analysts.
- Rio Tinto aims to increase earnings 40-50% by 2030
- Volume growth led by copper, iron ore and lithium
- Capital to be released through sale and leasebacks
- Shorter-term targets do not please everyone
By Greg Peel
Rio Tinto’s ((RIO)) capital markets day held earlier this month outlined an aim to increase earnings by 40-50% by 2030 by making the company a “Stronger, Sharper and Simpler” organisation. This is based on consensus prices with the main driver of the improvement being volume growth and cost savings.
Rio expects volume growth in 2025 at circa 7%, and reiterated a 3% compound annual growth rate of copper-equivalent volumes to 2030, led by Oyu Tolgoi (copper), Simandou (iron ore), and lithium.
In 2026, Rio expects only modest volume growth. Iron ore increases 4% year on year as Pilbara recovers and Simandou begins to ramp up, while aluminium is down -3%, normalising after a strong 2025, and copper is down -4% on lower grades at Escondida.
Lithium projects will be delivered to reach circa 200ktpa capacity by 2028, which is down from a previously estimated 225ktpa, with markets and returns to determine further capex.
Rio estimates a US$5-10bn capital release from the sale of non-core operations and infrastructure. Titanium oxide and borates represent around US$4bn of this, with the remainder expected through sale and lease back across infrastructure/mining/processing.
This strategy may increase opex, Morgan Stanley notes, but would be accretive if transactions are at a lower weighted average cost of capital.
Iron Ore
Management noted iron ore prices have outperformed forecasts due to persistent supply disruptions, underestimated depletion rates, sharper than expected grade decline, overstated scrap availability and the resilience of Chinese steel production.
Looking ahead, Rio expects strong demand growth from India and ASEAN countries to offset gradual Chinese declines.
The market will need around 950mt of new capacity, largely to offset -800mt of depletion, in Rio's view. Management noted only some 300mt has been committed, including Simandou, with development timelines also lengthening, leaving a -650mt gap by 2035.
Rio noted its Pilbara system has been running at 360mtpa since September. Morgan Stanley notes a 352Mtpa run-rate is required in the December quarter to meet bottom end of 2025 guidance. While cost guidance was not provided, the company expects Pilbara cost guidance will be similar to this year.
First ore at Simandou is to be delivered next year after major construction began just over a year ago and the rail spur finished five months early. Construction activities are some 60% complete with major works still required.
Rio is targeting 5-10mt of sales in 2026. Barrenjoey sees the target as “a touch soft” but suggests a soft target may be a net positive for market sentiment given the sheer size of the Simandou resource and capacity to suppress global prices.
Lithium
When asked by Morgan Stanley why Rio's lithium growth outlook has been moderated, with 2028 capacity now targeted at 200kt (previously 225kt), the company noted it is prioritising delivery of in-flight projects, and in Canada it will likely develop one spodumene mine to feed its core hydroxide facility rather than two in the near-term.
The company is are still assessing which one, with studies progressing. Management stressed long-term growth aspirations for lithium are about capital intensity and selectivity, rather than confidence in the market, with demand currently in-line with or outstripping forecasts.
Subsequent to the capital markets day presentation, Rio Tinto has since hosted analysts and investors for a “deep dive” presentation into its lithium division. The key takeaway was a downgrade to consensus earnings expectations for the division due to elevated pre-operating costs, with earnings indicated to be slightly lower across 2026-28 (by up to -2% only).
Significant reductions in capex intensity is a key focus for the next generation of unapproved projects, with capex headroom from 2028.
Management outlined potential lithium output growth beyond its 200ktpa target by 2028, contingent on supportive market conditions. This includes 110ktpa from Argentina and 60ktpa from Canada.
Macquarie believes this could be achieved through Fenix Phase 2, a Sal de Vida expansion, Cauchari, and Galaxy (all Argentina). However, water and power supply permits remain key considerations, alongside supportive lithium pricing.
Beyond 2030, Rio has indicated additional output potential from Altoandinos and Maricunga projects, which are not included in its current budget case.
For the first time management provided short-/medium-term cost guidance for key lithium assets. Nameplate costs are unchanged from last year at US$6/kg for Olaroz and US$6–7/kg for Sal de Vida, which is a positive in Macquarie’s view.
Encouragingly, Fenix and Rincon (Argentina) unit costs (at full ramp-up) are guided at US$5/kg and less than US$5/kg, both in the first quartile of the cost curve.
Rio reiterated capital discipline, noting growth capex will stay at around -US$1.1bn in the medium term, even with all expansion options included.
Interestingly for Macquarie, the company confirmed its targeted US$5-10bn of capital release excludes lithium projects, three of which remain under care and maintenance.
Management sees strategic value in retaining downstream processing, which provides customer insights critical for an evolving lithium market.
Macquarie nevertheless sees capital recycling opportunities in Jadar (Serbia), Naraha (Japan), and Mt Cattlin (WA).
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