Rio Tinto Limited

RIO Details

Becoming a Substantial Shareholder: Rio Tinto Limited (ASX: RIO) is engaged in the exploration of metals and minerals. It also produces, processes, develops, and markets them. As per a recent update, State Street Corporation and related subsidiaries have become a substantial shareholder in the company with a voting power of 5.34%.

Results of Offer to Purchase 3.75 % Notes Due 2025:

• The company has recently announced the purchase price wrt its offer to purchase the outstanding securities. The purchase price payable pursuant to the offer to purchase has been set at US$1,097.32 per US$1,000 principal amount of securities.
• It has also updated that following the issuance of US$1.25 billion 30-year bonds which were settled on 2 November 2021, Rio Tinto Finance (USA) Limited has agreed for a total purchase of US$759,948,000. The proceeds from the 30-year bonds will also be utilised to fund the redemption of securities that remain outstanding following the completion of the tender offer.

Q3FY21 Performance Update: The company produced resilient results during the period with an improvement in iron ore shipments & production over the prior quarter.

• Pilbara iron ore shipments grew by ~9% to 83.4 Mt, compared to Q2FY21.
• There has also been growth in bauxite and mined copper volumes by ~2% and ~8% to 14Mt and 125.2kt respectively, on the prior quarter. There has been a decrease in bauxite production when compared to Q3FY20, owing to issues in equipment reliability and overruns on planned shutdowns.
• During the quarter, the company entered into three partnerships with the objective of decarbonising its value chain further.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company is faced with the risk of commodity supply and demand, which intensifies at times due to supply chain bottlenecks, as well as due to material and energy shortages.

Outlook: The company expects Pilbara shipments to be 320 to 325 million tonnes in FY21 (previously at the low end of 325 to 340 million tonnes), due to slight delays in completion of the new greenfield mine at Gudai-Darri and the Robe Valley brownfield mine replacement project due to labour constraints. Guidance for pellets & concentrate from IOC also has been reduced to 9.5 to 10.5 million tonnes (previously 10.5 to 12.0 million tonnes). The company has kept the Pilbara iron ore 2021-unit cost guidance unchanged at US$18.0-$18.5 per tonne. However, it has increased the copper C1 unit cost guidance for 2021 to 75-80 US cents/lb, due to reduced refined copper production at Kennecott.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of RIO gave a negative return of ~30.95% in the past six months and a negative return of ~13.90% in the past one month. The stock is currently trading close to its 52-weeks’ low levels of $87.28. The stock has been valued using the P/E based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers’ average P/E multiple, considering the decrease in production compared to the pcp, and reduction in guidance levels. For this purpose of valuation, few peers like Fortescue Metals Group Ltd (ASX: FMG), BHP Group Ltd (ASX: BHP), 29Metals Ltd (ASX: 29M), and others have been considered. Considering the current trading levels, uptick in iron ore shipments & production, issuance of $1.25 billion 30-year bonds and indicative upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $87.39, as of 10 November 2021, 01:05 PM (GMT+10), Sydney, Eastern Australia.

RIO Daily Technical Chart, Data Source: REFINITIV  

Tempus Resources Ltd

TMR Details

Business Update: Tempus Resources Ltd (ASX: TMR) engages itself in the exploration of mineral resources in Canada & Ecuador. The Elizabeth / Blackdome Gold Projects in British Columbia, Canada is 100% owned by the Group and provides high resource prospects. Its Rio Zarza & Valle del Tigre projects in Ecuador is located in gold predominant sites. Further, the Valle del Tigre has potential for both copper and gold.  

September 2021 Quarter Highlights: The company has drilled 17 core drill holes at Elizabeth for ~5,200 metres, during the period.

• TMR identified visible gold in 3 holes (EZ21-02, EZ21-04, EZ21-12).
• The Group has also received assays for eight drill holes (Z21-01 to EZ21-08).
• TMR has identified a potential new gold vein, termed as ‘Blue Vein’ to 150m NW of the SW vein at Elizabeth.
• Further, a high-resolution airborne magnetic geophysical survey at the Elizabeth project confirms the potential for a much larger mineralisation system.
• To support the ongoing developments the company completed a private placement of ~$6.3 million, through the issuance of 24.99 million shares at an average price of $0.251 per share.
• Post the fund raise it held ~$4.34 million in cash reserves at the end of the given period.

Cash Equivalents Highlights (Source: Analysis by Kalkine Group)

Key Risks: The Group required adequate funding to carry out its exploration activities, and any challenge to attain the same might impact its operations.

Outlook: As per an alteration study completed at the Blackdome Gold Mine, it shows that historic mining was conducted in the epithermal gold system and there is decent potential for finding additional gold mineralisation. The company is planning to complete further drilling at Blackdome in 2022.

Stock Recommendation: The stock of TMR gave a negative return of ~15.78% in the past six months and a negative return of ~8.57% in the past one month. The stock is currently trading below its 52-weeks’ average levels of $0.145-$0.310. Considering the current trading levels, positive development activities during the September 2021 Quarter, successful fund raise, discovery of gold vein, technical levels mentioned below, and the key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.160, down by ~3.031% as of 10 November 2021.

Technical Insights:

TMR stock prices are trading above the horizontal trend line support level at AUD 0.155 on the daily chart. The momentum oscillator RSI (14-period) is trading near an oversold zone at ~35.12 level, which indicate the possibility of a rebound in the stock from the lower levels. However, the prices are trading below the trend-following indicators 21-period SMA and 50-period SMA, which may act as a resistance zone. An important for the support levels stock is placed at AUD 0.155 while resistance level is at AUD 0.195.

TMR Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.