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Rio Tinto (RIO) & First Quantum to Advance La Granja Project

Rio Tinto plc RIO and First Quantum Minerals FQVLF have announced a joint venture agreement with the aim to develop the La Granja copper project in Peru. It is one of the largest undeveloped copper deposits in the world and has the potential to be a Tier 1 copper mine.

La Granja is a complex ore body located at a high altitude in Cajamara, Northern Peru and has an indicated and inferred mineral resource of 4.32 billion tons at 0.51% copper. The combined development capabilities of Rio Tinto and First Quantum Minerals are expected to make it a significant new source of copper.

Per the agreement, First Quantum will acquire a 55% stake in the project for $105 million. It will further invest up to $546 million into the joint venture to fund capital and operational costs to advance the project through a feasibility study and development. When the sole funding commitment is completed by FQVLF, all subsequent expenditures will be applied on a pro-rata basis according to the ownership of the project.

The transaction is expected to be completed by the end of the third quarter of 2023, subject to the satisfaction of necessary approvals. Being the majority owner, First Quantum will operate the La Granja project with initial work focused on completing the feasibility study.

Rio Tinto had acquired the La Granja Project from the government of Peru in 2006. Since then the company has carried out an extensive drilling program that significantly expanded the declared resource and information regarding the ore body. It has also established partnerships with host communities as well as national and local governments. Developing the La Granja is expected to further strengthen Rio Tinto’s copper portfolio and follows its announcement of the commencement of underground mining at Oyu Tolgoi in Mongolia in March 2023.

Rio Tinto received a 66% direct interest in the world-class Oyu Tolgoi mine following the completion of its acquisition of Turquoise Hill Resources Ltd for approximately $3.1 billion in December 2022. Since January 2023, RIO has been working directly with the government of Mongolia to expedite the Oyu Tolgoi project. By 2030, Oyu Tolgoi is expected to become the fourth-largest copper mine in the world, operating in the first quartile of the copper equivalent cost curve.

Rio Tinto and FQM have also entered into a memorandum of understanding for strategic cooperation globally in copper and other base metals exploration and project development, as well as for sharing information and technical know-how around best-in-class mining, processing, and decarbonization.

The long-term outlook for copper remains positive as copper demand is expected to grow, driven by electric vehicles, renewable energy and infrastructure investments. However, grade decline, rising input costs, water constraints and scarcity of high-quality developmental opportunities continue to disrupt the industry's supply. This demand-supply imbalance will support copper prices in the future.

Price Performance

In the past year, shares of Rio Tinto have fallen 15.7% compared with the industry’s 26.1% decline.

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Zacks Investment Research

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Zacks Rank & Stocks to Consider

Rio Tinto currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Olympic Steel ZEUS and Steel Dynamics STLD. ZEUS and STLD currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Olympic Steel’s fiscal 2023 earnings per share is pegged at $3.50. Earnings estimates have moved 61% north in the past 60 days. ZEUS has a trailing four-quarter earnings surprise of 26.2%, on average. Its shares have gained 43.3% in the past year.

The Zacks Consensus Estimate for Steel Dynamics’ earnings per share is pegged at $14.84 for 2023. Earnings estimates have been revised 37% upward in the past 60 days. STLD has a trailing four-quarter average surprise of 11.2%, on average. The company has gained 26.9% in a year.


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