Rio Tinto’s New CEO Outlines His Grand Plan

Array
(
    [0] => Array
        (
            [0] => ((RIO))
            [1] => ((BHP))
        )

    [1] => Array
        (
            [0] => RIO
            [1] => BHP
        )

)

This story features RIO TINTO LIMITED, and other companies.
For more info SHARE ANALYSIS: RIO
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

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).

Responses

Rio Tinto’s capital markets day laid out an attractive vision for the company, in Citi’s view, with positive guidance commentary for 2025-26, reiterating the solid volume growth outlook by 2030 and capex normalisation.

Production volumes for copper, bauxite, aluminium and lithium are guided slightly ahead of Citi’s estimates, while the copper unit costs upgrade looks solid.

Citi sees the targets being positively received by the market and leading to consensus upgrades.

By contrast, UBS does not expect a material change to earnings from guidance. The strategy of the new CEO is evolutionary, not revolutionary, says UBS.

Morgan Stanley believes that although the company has a good set of targets, the market had higher expectations going into the event, which may lead to some rotation into BHP Group ((BHP)) over Rio Tinto.

Ord Minnett suggests the recent cost savings announced of -US$650m, driven by tight control of operational costs across the business, significant staff cuts, putting the controversial Jadar lithium and boron project in Serbia on care and maintenance, and taking a hard look at other development projects, proved a touch disappointing in quantum.

Maiden 2026 production guidance also disappointed Ord Minnett, with iron ore from Canada and Simandou, lithium, and copper missing consensus estimates, while Pilbara iron ore, bauxite, alumina and aluminium were largely as expected.

Ord Minnett nonetheless stands out among the six brokers monitored daily by FNArena covering Rio Tinto as having an Accumulate rating (above Hold, below Buy) amongst mostly Hold or equivalent ratings. Morgans has a Trim recommendation (below Hold, above Sell) but has not yet updated on the capital markets day.

The consensus target has risen in the wake, but only to $132.42 from $129.42 (current price $137.50).

Morgans is the current low-marker with a price target of $117 and thus depressing the overall average with peers’ targets ranging from $129.50 until $147.

More positive are Barrenjoey and Barclays, each with Overweight ratings. Barrenjoey has a $136.00 target while Barclays quotes its target as GBP5450p (below the London listed share price).

On current consensus forecasts, Rio Tinto shareholders should expect a total dividend payout of US365.8c for 2025, followed by US378.3c next year. This implies the downward trend has ceased as the company paid out US402c in 2024, and US435c in 2023.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms