Rio Tinto's first-quarter copper production beat expectations, while Pilbara full-year guidance remained unchanged

Overview

This report reviews Rio Tinto Plc's production data for the first quarter of 2026. The core conclusions are: the copper business performed clearly above expectations, iron ore production was strong, and although Pilbara shipments were affected by two cyclones, full-year guidance was unchanged; meanwhile, Simandou is progressing smoothly, and the restart of the Kennecott underground project and operational improvement at IOC are the main points to watch in the second quarter.

Core views

The report maintains a broadly neutral fundamental view while recognizing the resilience of operational execution. In copper, Oyu Tolgoi and Kennecott drove production above expectations, and the Oyu Tolgoi underground mine ramp-up remains on track, targeting average copper production of about 500ktpa in 2028-2036. In iron ore, Pilbara shipments were broadly in line with Morgan Stanley expectations but below consensus, while stronger-than-expected production indicates solid mine-site performance; the company estimates that about half of the roughly 8mt cyclone impact in 1Q can be recovered and maintains FY26 shipment guidance of 323-338mt. On costs, despite cyclone, diesel, and FX pressure, the company maintained Pilbara FOB unit cost guidance of US$23.5-25.0/t.

Analysis framework

The analysis mainly compares actual production with Morgan Stanley forecasts and Visible Alpha consensus, and assesses production variances across copper, Pilbara iron ore, IOC, bauxite, aluminium, and alumina. The valuation section uses a DCF-based sum-of-the-parts and relative valuation framework, combined with the target price, rating, and historical rating and price target record.

Methodology notes

• Valuation methodsDCF-based sum-of-the-parts

  Sum-of-the-parts DCF valuation

  Rio Tinto is valued using a DCF-based sum-of-the-parts approach, with scenario weights of 60% base case, 25% bull case, and 15% bear case. Key assumptions include WACC of 8.1%, cost of debt of 5.5%, cost of equity of 10%, and beta of 0.9x.

• Valuation methodsEV/EBITDA and P/NAV average

  Simple average of EV/EBITDA and P/NAV

  For Rio Tinto Limited, the analysis takes a simple average of two methods: applying the historical average EV/EBITDA multiple to average 2026-2027 EBITDA, and P/NAV, so as to reflect both short-term earnings power and long-term asset value; the EV/EBITDA multiple is 6.4x, P/NAV uses 1.0x, and NPV is based on a blended WACC of about 8.9%.

• Performance ComparisonActual vs MSe vs Visible Alpha consensus

  Comparison of actual production versus broker forecasts and consensus

  1Q26 actual production is compared with Morgan Stanley expectations and Visible Alpha consensus, identifying upside in copper and Pilbara production, slightly weaker-than-consensus Pilbara shipments, and IOC being materially below consensus, among other differences.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• RIO.L

  Covered security

  Strengths

  Copper production beat expectations, Pilbara production was strong, FY26 shipment and cost guidance remained stable, and the Simandou project is progressing smoothly.

  Weaknesses

  Pilbara shipments were below consensus, IOC production was materially below expectations, and the target price is below the current share price.

  Comparison

  Copper production was 9% above Morgan Stanley expectations and 6% above consensus; Pilbara production was 9% above the firm's expectations and 4% above consensus, but shipments were 2% below consensus.

  Risks

  Oyu Tolgoi capex or operating cost overruns, operational challenges in the iron ore business, falling commodity prices, diesel and FX pressure, and supply chain disruptions.

• Rio Tinto Limited (RIO.AX)

  Related listed entity

  Strengths

  Linked to the group's asset portfolio and commodity exposure, with valuation using EV/EBITDA and P/NAV frameworks to reflect short-term earnings and long-term asset value.

  Weaknesses

  Similarly exposed to iron ore, copper, and cost volatility risks.

  Comparison

  The report discloses the historical target price and rating trajectory of RIO.AX, but the main production review still centers on the group and RIO.L.

  Risks

  Oyu Tolgoi costs, iron ore production and cost performance, and commodity price volatility.

• Copper

  Core business / commodity exposure

  Strengths

  1Q26 production was 229kt, beating MSe/consensus by 9%/6%, with strong performance from Oyu Tolgoi and Kennecott.

  Weaknesses

  The Kennecott underground project was previously suspended after a fatal accident in March, and its phased restart still needs to be monitored.

  Comparison

  Copper accounts for about 31% of group EBITDA in 2026, and this quarter's performance was better than expected.

  Risks

  Oyu Tolgoi capex or operating cost overruns, and ramp-up falling short of expectations.

• Pilbara Iron Ore

  Core business / commodity exposure

  Strengths

  1Q26 production was 78.8mt, 9%/4% above MSe/consensus, indicating strong underlying mine performance.

  Weaknesses

  First-quarter shipments were affected by two cyclones by about 8mt and were 2% below consensus.

  Comparison

  Iron ore accounts for about 47% of group EBITDA in 2026, and FY26 shipment guidance of 323-338mt was maintained unchanged.

  Risks

  Weather disruptions, diesel and FX-driven cost pressure, and slower-than-expected shipment recovery.

Key data

• Rio Tinto Plc ratingEqual-weightMorgan Stanley rating; sector view is In-Line.
• Target price6,900pFor RIO.L, as disclosed in the report table.
• Closing price7,395pAs of 2026-04-20.
• Pilbara iron ore shipments72.4mtOn a 100% basis, 2% below consensus and broadly in line with Morgan Stanley expectations.
• Pilbara iron ore production78.8mtOn a 100% basis, 4% above consensus and 9% above Morgan Stanley expectations.
• Copper production229kt6% above consensus and 9% above Morgan Stanley expectations.
• Oyu Tolgoi production102kt13% above Morgan Stanley expectations and 8% above consensus.
• Kennecott refined copper34kt20% above Morgan Stanley expectations.
• FY26 Pilbara shipment guidance323-338mtMaintained by the company; Morgan Stanley expects 328mt, and Visible Alpha consensus is 330mt.
• Pilbara FOB unit cost guidanceUS$23.5-25.0/tMaintained by the company; from May, every US$10/bbl move in oil price is expected to affect unit cost by about US$0.15/t.
• IOC iron ore pellets and concentrate2.0mt16% below consensus and 14% below Morgan Stanley expectations, affected by severe weather and equipment reliability.

Impact & implications

In the short term, better-than-expected copper performance and strong Pilbara production support operating quality, but shipment recovery, cost control, and IOC improvement will still determine subsequent earnings delivery. In the medium term, the Oyu Tolgoi ramp-up and Simandou commissioning progress are sources of incremental growth; however, with the current target price below the share price, the Equal-weight rating is maintained, implying the report emphasizes operational tracking rather than a clear upside re-rating.

Risks

• Further spending increases or operating cost overruns at Oyu Tolgoi.
• Renewed operational challenges in the iron ore business, affecting production or cost performance.
• Falling commodity prices.
• Pilbara shipment recovery after cyclone impacts coming in below expectations.
• Diesel prices and FX volatility pushing up Pilbara unit costs.
• Persistent equipment reliability and mine asset challenges at IOC.
• Middle East conflict could bring supply chain disruptions and input cost inflation in the second half of the year.

What to watch

• Progress of the phased restart of the Kennecott underground project.
• IOC equipment reliability and production recovery.
• Delivery of the recoverable portion of the roughly 8mt cyclone impact in Pilbara during the first quarter.
• Whether FY26 Pilbara shipment guidance of 323-338mt and FOB unit cost of US$23.5-25.0/t can be maintained.
• Whether the Oyu Tolgoi underground ramp-up continues on schedule toward average copper production of about 500ktpa in 2028-2036.
• Upcoming Simandou milestones: first ore from the permanent crushing system in 2H26 and port commissioning in 1Q27.
• The impact of diesel prices, AUD/USD, and supply chain costs on earnings and cost guidance.