Are Rio Tinto shares in the buy zone?

Is it time to snap up this mining giant's shares?

| More on:
Image of young successful engineer, with blueprints, notepad and digital tablet, observing the project implementation on construction site and in mine.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Rio Tinto Ltd (ASX: RIO) shares are having a good session on Thursday.

At the time of writing, the mining giant's shares are up 1.2% to $128.02.

This compares favourably to a 0.2% decline by the ASX 200 index today.

Why are Rio Tinto shares climbing?

Today's gain appears to have been driven by a relatively positive reaction to its investor day event from the broker community.

For example, Morgan Stanley has responded by reaffirming its overweight rating and $134.50 price target. This implies potential upside of just over 5% for investors from current levels.

In addition, the broker expects a fully franked 5.5% dividend yield in FY 2024. This boosts the total potential return to 10.5%.

Elsewhere the team at Goldman Sachs has responded positively. It has retained its buy rating with a $137.70 price target.

This suggests an upside of 7.5% for investors over the next 12 months. And with a 5% dividend yield expected next year, this would mean a 12.5% return for investors if Goldman is on the money with its recommendation.

Commenting on the company's update on its iron ore plans, the broker said:

Project scope, timing and economics were provided for Simandou which were all broadly in-line with GSe; RIO's share of production expected to be 27Mtpa (60Mtpa 100% basis from the Southern Block 3 tenement), RIO's share of capex US$6.2bn vs. GSe US$6.8bn (nominal est, US$5.7bn remaining to be spent from 1 Jan 2024), first iron ore production in late 2025 but first ore on ship 30-42m post signing of agreements. Therefore, first iron ore on boat is likely 2H26, which is broadly in-line with our model. RIO estimates at IRR in the low double digits (11-13% post tax, real basis vs. GSe ~12%). Operating costs, royalties, tax rates provided were also broadly in-line with GSe. We value RIO's 45% share of Simandou at ~US$5.5bn or ~A$5/sh.

In light of this, Goldman remains positive on the mining giant and sees value in Rio Tinto's shares due to its "compelling relative valuation" and "attractive FCF and dividend yield."

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 positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

More on Materials Shares

A happy businessman pointing up, inidicating a rise in share price
Materials Shares

Why are ASX lithium shares like Liontown having such a bumper session today?

Lithium shares are defying the broader market on Wednesday.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Materials Shares

Why is the Chalice Mining share price rocketing 20% today?

Shareholders have a reason to smile at long last on Wednesday.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Materials Shares

Why are Core Lithium shares taking another tumble on Wednesday?

It doesn't look like mining operations will be resuming any time soon.

Read more »

Three miners looking at a tablet.
Broker Notes

Should you buy Pilbara Minerals shares today?

We canvas the experts' views on this ASX lithium stock following last week's FY24 half-yearly report.

Read more »

Two businesspeople walk together in an office, smiling as they enjoy a good business relationship.
Materials Shares

4 directors are buying the dip on this ASX lithium stock

Insiders have been busy buying shares in this lithium miner.

Read more »

A man sees some good news on his phone and gives a little cheer.
Earnings Results

Lynas share price charges higher despite 74% half-year profit decline

Weak rare earths prices have weighed heavily on the company's profits.

Read more »

A team of people giving the thumbs up sign representing APA and Wesfarmers doing a deal to study green hydrogen transport using an APA gas pipeline
Materials Shares

Why ASX 200 investors remain upbeat on Pilbara Minerals shares

Pilbara Minerals has some unique advantages over many rival ASX lithium miners.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Materials Shares

This ASX lithium share is charging 13% higher on $825m financing update

This lithium developer is ending the week on a high. But why?

Read more »