Rio's Pilbara undervalued: DB

The investment bank sees great potential for investors from lower capital expenditure and a quicker ramp-up in the Pilbara operations.

The market is underestimating the potential of Rio Tinto's Pilbara operations and the savings the mining giant can squeeze from the project, according to Deutsche Bank.

The investment bank reiterated its "buy" recommendation on the stock following a site visit to the Western Australian iron ore project and kept its 12-month price target at $80.30 – almost $20 higher than the miner's current share price. Deutsche's price target is the highest among brokers surveyed by Bloomberg.

"Rio again demonstrated their industry leading ability to deliver projects ahead of budget and schedule," the bank said, after it was revealed Rio will hit the 290 million tonnes per annum run-rate more quickly than expected, now by May 2014, and the options available for it to expand to 360 million tonnes.

The broker believes Rio Tinto can save at least $US1 billion due to savings from the delay of Brockman, lower contractor rates and the benefits from the weaker Australian dollar (see Tim Treadgold's Re-examining Rio).

The miner's share price was up 2.67% to $60.80 at 1335 AEST compared to a 0.24% rise from the S&P/ASX 200.