Rio Tinto Ltd (ASX: RIO) shares are a popular option for investors seeking exposure to the mining sector.
But are they a good option right now? Let's see what Macquarie Group Ltd (ASX: MQG) is saying about one of the world's largest miners.
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What is the broker saying?
Macquarie notes that Rio Tinto has announced a major restructure, which changes its executive leadership team and moves assets.
One change is the disbandment of the minerals division. It commented:
Minerals division disbanded: RIO announced through their restructure that the Minerals Division will be disbanded, with Iron Ore Canada (IOC) and Simandou moving under Iron Ore (with Matt Holcz now formally in charge), and Lithium being moved under Aluminium (under Jerome Pecresse). Iron and Titanium and Borates will be placed under CCO Bold Baatar, with former division head Sinead Kaufman leaving the business.
Another interesting decision that the broker highlights is the demotion of the CEO Australia role. It adds:
Interestingly the CEO Australia role has been demoted to a "Head of" Australia role. With an Australian-born CEO, the move simplifies engagement with Government and First Nations. Kellie Parker will leave the business.
One key positive from the plan according to the broker is the potential simplification of its business, bringing it more in line with rival BHP Group Ltd (ASX: BHP). Macquarie explains:
Iron and Titanium Division under review: We agree a portfolio simplification is a key to driving improved returns and lowering portfolio risk, one of the key detractors versus peer BHP. For example, at the last results, Minerals Ebitda performance was a key detractor from an otherwise good result. […]
The move is a step in the right direction and bodes well for Simon Trott's new strategy, which will assumedly be launched at the RIO capital market's day in December. Simplification and lower costs will be key to ensure it can close its competitive free cash flow differential between it and Pilbara peers.
Are Rio Tinto shares a buy, hold, or sell?
According to the note, the broker is sitting on the fence with this one and has retained its neutral (hold) rating with an improved price target of $111.00. This is just a touch lower than where it currently trades.
Overall, it sees positives in the announcement, but not enough to warrant a change of recommendation just yet. It concludes:
Neutral. We see the move to consolidate and simplify the organisational structure as a positive step and an indication of further more material simplification to come. RIO currently lags BHP on iron ore free cash flow generation; simplification could drive relative productivity gains if successful.
