Rio Tinto Ltd (ASX: RIO) shares have been under pressure this week.
This has been driven by a pullback in iron ore prices and the release of the miner's full-year results.
While disappointing for shareholders, it could prove to be a buying opportunity for the rest of us.
That's the view of analysts at Goldman Sachs, which remain very positive on the mining giant.
What is the broker saying about Rio Tinto shares?
Goldman was relatively pleased with the company's full-year results and believes it is well-positioned for the future. Particularly given the company's growth options. It said:
RIO continues to believe they are option rich and have the best exploration pipeline in years, perhaps decades. We believe RIO is focused on creating value for shareholders through early stage exploration rather than large M&A, a good example being the recent copper JV with Codelco on the Nuevo Cobre project could extend into lithium salar projects in Chile.
In light of the above, the broker believes that Rio Tinto shares are attractively priced and has named five reasons to invest.
These are its compelling relative valuation at ~0.85x NAV, its attractive free cash flow (FCF) and dividend yield, strong production growth in 2024 and 2025, the Pilbara turnaround, and its compelling high margin low emission aluminium exposure.
In respect to its production growth, the broker said:
Rio is a FCF and production growth story in our view, with forecast Cu Eq production growth of ~5-6% in 2024 & 2025 driven by the ramp-up of the Oyu Tolgoi UG copper mine & a recovery at Escondida and Bingham, higher Pilbara Fe shipments with the ramp-up of new mines, and a rebound in aluminium production post labour and equipment challenges and the acquisition of Matalco.
Big returns
Goldman has retained its buy rating with a slightly trimmed price target of $138.30. This implies potential upside of 11% for investors.
In addition, it is forecasting a US$4.40 (A$6.71) per share fully franked dividend in FY 2024. This represents a 5.4% dividend yield, boosting the total potential return beyond 16%.
