Company Interview / The mining trade Ryan's digging

Key points:

Rio Tinto’s update highlights copper cost guidance benefits from gold by-products and strong lithium demandRising diesel and haulage costs prompt a reassessment of mining cost estimates ahead of reporting seasonAI-based valuation work suggests the ASX 200 trades around 30% above intrinsic value, with major banks seen as overvalued

Ryan Lim from Alpha Insights flags resource sector costs and shifting demand drivers as key themes in the latest production updates. Lim states that Rio Tinto’s (ASX:RIO) copper cost guidance effectively halves due to stronger by-product credits from elevated gold prices, which he links to BHP Group (ASX:BHP) outperforming Rio on the day. He also points to higher diesel and haulage costs showing up across miners, urging investors to reassess cost assumptions ahead of the August reporting season.

Lim highlights Rio’s lithium division, noting management’s view that lithium demand remains strong, driven more by grid-scale and stationary battery storage than electric vehicles. He suggests this positions Rio increasingly as a lithium-focused story, while BHP leans more heavily into copper, with around half of BHP’s earnings currently tied to copper exposure. Evolution Mining (ASX:EVN) is cited as another example of rising energy costs, with Lim saying its cost profile is broadly in line with expectations but facing a softer gold price backdrop.

Turning to the broader market, Lim explains that Alpha Insights’ AI-driven valuation work on every ASX 200 constituent puts the index about 30% above intrinsic value. He views major banks, including Commonwealth Bank (ASX:CBA), as overvalued, warning that rising provisioning and deteriorating asset quality could surprise consensus later in 2024.