Canaccord keeps 'buy' on Rio Tinto after Q3 production report

15th Oct 2014 10:41

Rio TInto remains Canaccord Genuity's top pick in the large-cap mining sector after the group's third-quarter production update on Wednesday.Shipments from its main division, iron ore, increased by 15% year-on-year in the third quarter to 78m tonnes, while production rose 12% to 76.8m tonnes.This was "bang in line with our estimates, as was the aluminium output", said Canaccord's Peter Mallin-Jones and Nick Hatch."The main beat came from the copper unit, where the impact on the Kennecott Utah operation of the two-month smelter maintenance output was smaller than we had expected. This more than offset the impact of lower-than-expected grades at Escondida," they said.Copper output only rose 1% to 151,800 tonnes in the third quarter, but year-to-date production is now 15% higher than last year due to improved recoveries at the Kennecott concentrator and the sustained ramp up at Oyu Tolgoi.Rio Tinto expects to produce 615,000 tonnes of copper this year, up from its previous guidance of 585,000.The analysts said: "Within the copper operations the gold grades at Oyu Tolgoi and Kennecott were also higher than expected, suggesting that overall the copper improvements are stronger than the copper beat might at first suggest."The broker stuck with its 'buy' rating and 4,080p target price for the shares."Its 4.3% dividend yield in 2014, rising to over 5% in 2016 as the free cash flow comes through is a signal of the strong free cash flows we expect from the group," Mallin-Jones and Hatch said.The stock was down 1.4% at 3,118p by 10:52.