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DJ MARKET TALK: Rio Tinto Upped To Buy From Underperform By ML

2211 GMT [Dow Jones] STOCK CALL: Merrill Lynch upgrades Rio Tinto (RIO.AU) to Buy from
underperform in the wake of the announcement of deep spending and job cuts to pay down
debt. The measures see Merrill Lynch up its net profit forecast for 2009 by 5% and 2010
by 12% on lower capex and controllable costs. Says it has taken more than two weeks since
BHP Billiton (BHP.AU) abandoned its bid for Rio for the miner to come out to the market
with a plan B; "We had begun to worry that they didn't have one," ML says.
Says it's fair that Rio trades at a discount to BHP given its higher debt levels,
lower cashflow generation, flat dividend profile and lower growth, but that the current
discount is excessive. ML says Rio may not currently need to raise equity, but if current
market conditions persist, it could need to carry out an equity raising by mid-2009.
Target price lifted to A$60 from A$50; Rio last traded at A$37.40. (APW)