Rio Tinto Ltd (ASX: RIO) shares are falling on Monday morning amid broad weakness in the mining sector.
At the time of writing, the mining giant's shares are down 1.5% to $124.64.
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Should you buy Rio Tinto shares?
The team at Goldman Sachs believes that investors should be snapping up Rio Tinto shares today.
In fact, the broker is so positive on the mining behemoth that it has just added its shares to its coveted conviction list with a buy rating and improved price target of $140.40.
Based on the latest Rio Tinto share price, this implies potential upside of almost 13% for investors over the next 12 months.
In addition, the broker is forecasting a US$5.33 (A$8.19) per share fully franked dividend in FY 2023. This represents an attractive 5.8% dividend yield, which stretches the potential total return to almost 19%.
Why is Goldman bullish?
Goldman is bullish on Rio Tinto due to its production growth potential in the coming years thanks to the Guida-darri mine and the Rhodes Ridge development. It feels the latter could close the free cash flow per tonne gap with rival BHP Group Ltd (ASX: BHP).
The broker explained:
RIO (Buy add to CL): Iron ore is ~50% of our NAV and ~65% of FY23 EBITDA. In 2022, Rio's Pilbara iron ore business assets produced 324Mt (100% basis) and Iron Ore Company of Canada (IOC) produced 10Mt.
RIO has guided Pilbara shipments at 320-335Mt which we think is conservative (GSe 335Mt) based on the ramp-up of the ~45Mtpa Guida-darri mine by mid year and the strong start to the year for shipments. Over the medium to long run, we think the development of Rhodes Ridge has the potential to be significant for RIO's Pilbara business as it could lift mine system capacity by >10% to >360Mtpa, utilise spare rail and port infrastructure, and help close the >US$10 FCF/t gap with BHP by US$6-8/t or by >50% by the end of the decade.
All in all, the broker believes this makes the mining giant one for investors to consider buying right now.
