The Rio Tinto Ltd (ASX: RIO) share price came under pressure on Thursday after the mining giant released its first-quarter update.
The miner's shares fell 2.5% to end the day at $120.33.
Is the pullback in the Rio Tinto share price a buying opportunity?
While the market may have been a touch disappointed with Rio Tinto's quarterly update, the team at Goldman Sachs has seen enough to remain positive.
According to the note, the broker has retained its conviction buy rating with an ever so slightly trimmed price target of $136.20.
Based on the current Rio Tinto share price, this implies potential upside of 13% for investors over the next 12 months.
Making things sweeter is the broker's forecast for a fully franked US$5.40 (A$8.09) per share dividend in FY 2023. This equates to a generous 6.7% dividend yield for investors at current prices.
What did the broker say?
Goldman highlights that there were positives and negatives from Rio Tinto's quarterly update. It said:
RIO reported a broadly strong start to 2023 with record 1Q Pilbara iron ore shipments of 82.5Mt (+3% vs. GSe) due to the ongoing ramp-up of the Gudai-Darri and Robe Valley mines, positioning RIO to hit the top end of the of 320-335Mt guidance range (GSe 335Mt).
Copper production increased 10% QoQ to 145kt but fell short of our 157kt estimate due to lower than expected head grades at Escondida in Chile and equipment outages at Kennecott (Bingham) in the US. As a result, RIO has reduced copper production guidance by 60kt to 590-640kt (GSe revised to 636kt).
The broker also highlights that there are a few uncertainties in regard to growth projects, but was pleased with the Oyu Tolgoi ramp up. It adds:
On a positive note, the ramp-up of the Oyu Tolgoi block cave is tracking well with the UG rates increasing to ~3Mtpa (8ktpd) and ahead of our estimate. Other growth projects have seen some delays with the schedule and budget for the Rincon lithium project in Argentina under review and no further details on capex or timing for Simandou iron ore in Guinea.
Overall, thanks to its "compelling relative valuation" and strong free cash flow and dividend yield, the broker remains positive and keeps the miner on its conviction list.
