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Why the Rio Tinto share price has been on a rollercoaster

The Rio Tinto Limited (ASX: RIO) share price seems to have found a bottom (for now, at least) and has started to recover after August’s selling pressure.

RIO shares found a new 52-week high in July of $107.99 after breaking through the triple-digits for the first time since 2008 in April.

But, spurned by a falling iron ore price, Rio shares started backtracking soon after reaching the new high and fell all the way to just below $83 by late August. The company also went ex-dividend for its September 19 payout on August 8, so this added to the selling pressure.

However, this was not to last – fast forward two weeks to today and Rio shares have opened at $90.90, a 6.5% increase. So why have Rio shares rebounded? Let’s take a look at this share market rollercoaster.

A refresher on Rio Tinto

Rio Tinto is our second largest ASX miner and is primarily focused on iron ore, which makes up roughly two-thirds of Rio’s earnings. The other third stems mostly from a combination of aluminium, copper and diamonds, but uranium, titanium and boron are also in the mix.

Between the start of 2019 and its July peak, the Rio share price appreciated over 42%. This was mostly due to the price of iron ore rising from around US$75 per tonne in January to over US$120 per tonne by July as a mining dam collapse in Brazil caused a supply squeeze. But as this squeeze abated, iron prices fell back down to around the US$85 level – which coincided with Rio’s share price slump in August.

Why have Rio shares been rebounding?

Again, its all about that iron price. Iron ore is now firmly back above US$90 per tonne, and the market is likely assuming that it has found a bottom (at least in the short term) and readjusted Rio’s share price accordingly. Rio is also a company flush with cash after such dramatic iron price increases. Although its $3.08 per share September final dividend is now out of reach, it’s possible that next year’s interim dividend will also be a hefty one, so it’s also possible investors are locking in early.

Foolish Takeaway

Despite the rollercoaster share price, I think Rio is now looking like a much better deal than last month. For income investors, it might even be worth deploying some additional capital into Rio at these levels for the next dividend payment – but remember, resource companies are not the most reliable income stocks out there.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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