Source: The Australian                        Date: 13 April, 2011

If the pundits are on the money, Rio Tinto shares will hit AUD100 in the near future -- the first triple-digit dazzler to grace the ASX boards since the onset of the financial crisis. For Australia’s second-biggest miner, the pending moment will symbolize “mission accomplished'' for Rio's return to respectability after its near-death experience of its ill-fated Alcan acquisition in 2007. Rio shares peaked at AUD115 in May 2008, but by the end of that year it tumbled to AUD30.

In recent history, blue-chip stocks have struggled to surpass the AUD100 level. Unlike Americans who happily mortgage their condo for one USD125,000 Berkshire Hathaway share, local investors have been reluctant to embrace ``expensive'' shares. But cracking the ton means bragging rights for the investor-relations guys. ``There's certainly something romantic in a stock being over AUD100 in our market,'' says Austock Securities senior private adviser Michael Heffernan.

What's more pertinent is the company's overall earnings and dividend pools, which are divided between the shares on issue. A company with 100 million AUD1 shares on issue has more mouths to feed than an entity with one million AUD100 shares on issue. Share buybacks -- such as BHP Billiton's and Rio's current efforts -- increases EPS and in theory boosts the value of the remaining shares by a similar amount.

Rio is generating billions from the commodity boom, but is valued on a miserly current year price-earnings ratio of under 10 times. As with BHP Billiton, investors simply don't believe the commodity price growth -- especially for iron ore -- can continue. Based on the average valuation (or target price) of 12 analysts, Rio shares are predicted to hit AUD106. Rio's tragic twist is that it would already be an AUD100-plus stock if it hadn't been for the emergency rights issue at the height of the downturn, which increased the miner's share base by one-third.