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March 31, 2010 Dear Friend,
We updated our
spreadsheets for Rio Tinto to reflect higher iron ore
prices, higher met coal, higher aluminum prices and the
adverse impacts of a higher A$, C$ and other exchange
rates. We cut our estimated discount rate to 8.5% from 9.4%
as the company's financial conditions improves and debt
falls. We cut our estimate of the terminal growth rate to
2.8% from 3.3% due to asset sales, a smaller portfolio of
key projects, over-emphasis of aluminum and more elevated
spot prices of a few key commodities.
We arrived at a $241 per
ADS target price, and the shares trade within 1% of that
target. It also may be a reasonable tact to run with a
smaller number of Overweight recommendations as the good
times are here, commodity prices are fuller and we want to
be selective.
Faithfully,
John C. Tumazos
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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