Is Rio Tinto a buy after posting record Q1 iron ore shipments?

Rio Tinto (ASX: RIO) exceeded market expectations for its Pilbara iron ore shipments for the March quarter but fell short in its mined copper volumes, bauxite production and alumina output on Thursday.

An ongoing pullback in iron ore has further pressured Rio Tinto shares, which fell 2.3% on Thursday and down another 2.5% in early trade on Friday.

Does a record iron-ore shipment result present a buy the dip opportunity? Or should investors sit out amid falling iron ore spot prices and weaker output across other commodities?

Let’s see what brokers are saying.

Macquarie: Balanced risks, Neutral rating

 “The record shipment result for Pilbara Iron Ore was a key positive for Rio Tinto, offsetting weaker volumes in copper, bauxite, titanium dioxide and precious metals,” Macquarie analysts said in a note on Thursday.

“We make modest changes to our forecasts as stronger iron-ore volumes are offset by volume reductions in other divisions.”

“Rio Tinto is generating strong cash flow, with the stock trading on free cash flow yields of 11% and 13% for CY23 and CY24 at spot prices.”

To summarise the analysts’ take on Rio’s divisional performances:

• Iron Ore: The March quarter was very strong thanks to abnormally low rainfall in most parts of Pilbara. The ramp up of the Gudai-Darri mine is progressing as planned. Overall, Rio is ‘well placed’ to deliver on an improved performance in iron ore. Analysts expect the company to ship 334m tonnes in 2023, towards the upper end of its 320-335m tonne guidance range. 

• Copper: Mined copper production was weaker than expected and guidance was cut by 9-10% to reflect the ongoing impact of conveyor belt motors at Kennecott. 

• Bauxite: Output was weak due to wet weather conditions and equipment downtime. Analysts expect bauxite production to come in at the lower end of guidance.

• Aluminium: Smelter performance was generally weaker than expected.

Macquarie retained a NEUTRAL rating for the stock and lowered its target price by 1% to $122.00.

Citi: Iron ore in-line, limited upside

Similarly, the March quarter production was in-line with Citi’s Pilbara shipments forecasts but everything else was softer than expected. 

“The shares are up on the China reopening story and are now near our DCF, but our concerns around the global economy in CY23 remain,” said Citi. 

“Our base case is for reversion to normalised commodity prices in CY24. We see the current share price appropriately reflects the risk reward profile for the company.”

A NEUTRAL rating was maintained along with a $120.00 target price. 

Rio Tinto 12-month share price chart (Source: Market Index)