Here’s why the Rio Tinto (ASX:RIO) share price is down 20% in 3 months

This mining giant’s shares have fallen sharply over the last three months…

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It certainly hasn’t been a good three months for the Rio Tinto Limited (ASX: RIO) share price.

During this time, the mining giant’s shares have lost 20% of their value.

This means Rio Tinto’s shares have now given back all their year to date gains and some more.

Why is the Rio Tinto share price sinking?

Investors have been selling down the Rio Tinto share price over the last three months due to significant weakness in the iron ore price.

For example, last week the spot benchmark iron ore price dropped below US$100 a tonne before rebounding to close the week at US$111.33 a tonne.

This compares very unfavourably to the price the steel making ingredient was commanding in May. At that point, the spot price was up as high as US$230 a tonne.

While nobody thought that iron ore’s bull run was sustainable and declines were expected, few were expecting such a swift and sharp pullback.

This has led to material revisions to earnings and dividend forecasts by analysts for the mining giant, which has ultimately weighed on broker valuations for the Rio Tinto share price.

Is this a buying opportunity?

According to a recent note out of Goldman Sachs, its analysts see a lot of value in Rio Tinto’s shares now.

The broker currently has a buy rating and $147.50 price target on its shares. Which, based on the current Rio Tinto share price, implies potential upside of 48% over the next 12 months.

In addition, Goldman is forecasting some huge dividends from the miner in the near term. It currently expects fully franked yields of ~16% in FY 2022, ~17% in FY 2022, and ~15% in FY 2023.

This is based on the broker’s average iron ore price forecasts (from 19 September) of US$189 a tonne in 2021, US$160 a tonne in 2022, and US$120 a tonne in 2023.

Should you invest $1,000 in Rio Tinto right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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