Getxy,Macquaries opinion on RIO,,,,Macquarie: RIO reports August...

Getxy,

Macquaries opinion on RIO,,,,

Macquarie: RIO reports August 3
2/08/05

RIO Tinto is due to report its first half result on Wednesday August 3 at 4pm. The company delivered outstanding second quarter volumes with particularly strong tonnages recorded in the core iron ore business. The pleasing level of performance, when combined with general strength across the portfolio, will continue to provide strong leverage to the robust pricing environment.




As a result, Macquarie Research Equities (MRE) reaffirms the confidence in Rio Tinto’s ability to generate in excess of US$4.4bn of underlying earnings in CY05, a staggering 95% increase year on year. In addition, MRE expect continued strength in commodity pricing and ongoing volume growth to drive CY06 earnings to over US$5.0bn.

MRE expect Rio Tinto to deliver an underlying first half result of US$1.96bn which compares with a consensus expectation of around US$1.95bn. Given Rio Tinto’s dividend policy where the interim is equivalent to half of the previous full year, there should be no surprise when a US38.5c is declared. Exceptional cash generation will have further strengthened the balance sheet and continues to provide significant flexibility going forward and MRE expect management to reiterate their intention to complete the US$1.5bn capital management program over the next 18 months.

MRE have a 12 month price target of A$50.00 based on a DCF and multiple analysis methodology. The expectation is for Rio Tinto’s half year result to represent a strong endorsement of the Rio Tinto business strategy and the quality of their asset portfolio. More importantly, MRE expect the result to engender further confidence in Rio Tinto’s ability to deliver over US%5.0bn in earnings in CY06 which in turn is expected to create strong support for the stock.

Traders looking for maximum exposure to short-term movements in the RIO share price should consider the following equity warrants for a high-risk, high-return strategy.

Investors and traders looking for short to medium-term leveraged exposure to the RIO share price should consider Macquarie Instalments for a higher risk, higher return alternative to direct share investment.

Long term, more conservative investors looking for a simple, "set and forget" investment should consider the Self Funding Instalments over RIO. SFI's are moderately geared, have no annual resets and a maturity date in up to five years.



DISCLOSURE: Macquarie Bank Limited, Macquarie Equities Limited, Macquarie Equities (USA) Inc or any of their associates, officers or employees may have interests in securities referred to herein, including directorships or performance of investment banking services. Further, they may buy or sell securities of the companies mentioned in this report as principal or agent, and as such may effect transactions which are not consistent with the recommendations in this report. Financial intermediaries, please be aware that products in this email may not be approved by your dealer group. Please contact your research manager or Macquarie Structured Products if you wish to discuss.

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