Rio Tinto may have swung to its first-ever annual loss in 2012, but Nomura has kept its 'buy' rating and 3,700p target price for the stock, calling its full-year results 'solid'.

The company reported Thursday a net loss of $2.9bn for 2012, down from a profit of $5.8bn the year before, reflecting write-downs on its Alcan takeover in 2007 and a coal acquisition in Mozambique. Capital expenditure also rose 42% year-on-year.

Nevertheless, Nomura said: "A first look at results shows a small beat versus Nomura and consensus, looking past the headline numbers, which include the asset impairments that have already been well publicised."

Adjusted profits came in at $9.3bn, ahead of the consensus estimate of $9.1bn.

The broker said that three of Rio's smaller divisions, Diamonds/Minerals, Energy and Aluminium, were behind the better-than-expected results. The iron ore unit, which accounts for around 80% of earnings, delivered in-line results.

Nomura also highlighted comments from new Chief Executive Officer Sam Walsh, who said that the firm will "only invest in assets that [...] offer attractive returns that are well above our cost of capital, and which offer a superior return when compared to returning cash to shareholders".

The broker said: "This rhetoric is likely to please investors, and mirrors some of Rio Tinto's competitors in the space, which have adopted a capital efficient tone in recent times."

Nomura concluded by labelling Rio as an attractive and relatively low-risk exposure to the mining sector in a "volatile and unpredictable" macroeconomic environment.

"The reinforced focus on capital discipline, along with the strong cash generation we expect, should pave the way for meaningful capital returns to shareholders over the coming 12-24 months."

After a strong rise in the opening hour of trade, shares were down 1.78% at 3,690p by 10:42 on Thursday.

BC

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