Why the Rio Tinto (ASX:RIO) share price could be a bargain buy

This mining giant could be a share to buy in December…

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If you’re wanting some exposure to the resources sector, then the Rio Tinto Limited (ASX: RIO) share price could be one to consider.

That’s the view of the team at Goldman Sachs, which has just reiterated its buy rating.

What does the broker think about the Rio Tinto share price?

According to a note out of the investment bank this morning, its analysts have retained their buy rating and $121.00 price target on the mining giant’s shares.

Based on the current Rio Tinto share price of $94.65, this implies potential upside of 28% for investors over the next 12 months.

But it gets better! Goldman also expects an US$8.10 per share fully franked dividend to be paid to shareholders in FY 2022. This equates to a ~12% yield at current levels and exchange rates.

What did Goldman say?

Goldman recently attended a briefing with Rio Tinto’s Chief Executive of Aluminium, Ivan Vella.

The note reveals that the broker left the briefing feeling just as bullish on the company’s aluminium operations as before.

It commented: “RIO continues to see a favourable outlook for the Aluminium market. As outlined at its recent Capital Markets Day (CMD), Rio expects Al demand growth of 3.3%/yr from 2020-2030 (vs. GSe c. 3%), and on supply, Rio expects 5.5% growth in scrap and 2.3% growth in primary production, with growing differentiation in production costs between hydro and coal powered smelters, with coal-powered smelter cash costs doubling to 2030 under a US$100/t carbon price, with nuclear power for smelting viewed as expensive.”

Why does the broker like Rio Tinto?

Goldman’s buy rating on the Rio Tinto share price is predicated on four key factors.

These are its valuation (0.82x NAV), strong free cash flow and dividend yield, its return to production growth in FY 2022, and its compelling low emission aluminium exposure.

In respect to the latter, the broker said: “In addition to copper production growth, Rio has one of the highest margin, lowest carbon emission aluminium businesses in the world, with over 2.2Mt of Ali production powered by hydro, and we think ELYSIS inert anode technology could be worth billions of $. Aluminium will contribute 20% of RIO’s group EBITDA in 2022 on our estimates.”

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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