Rio Tinto: Iron Ore Sales Remain Solid, but Prices Are Expected to Fall

No-moat Rio Tinto’s 2023 fourth-quarter sales were in line with our expectations. Its share of sales from its Pilbara iron ore operations, the main driver of earnings, was roughly 280 million metric tons in 2023, 4% above last year. Rio is on track to meet our forecast for 2023 Pilbara unit cash costs of around USD 22 per metric ton, modestly higher than 2022, when it reports its 2023 earnings in February. We forecast similar Pilbara iron ore sales and unit cash costs in 2024. Rio’s Pilbara operations account for roughly 80% of our forecast 2023 EBITDA of about USD 24.7 billion. Assuming a 55% payout ratio, we forecast 2023 dividends of USD 4.30, or around AUD 6.40, per share, representing a fully franked yield of about 5% at the current share price.