The S&P/ASX 200 Index (ASX: XJO) mining stock Rio Tinto Ltd (ASX: RIO) is an appealing miner to dig into in my opinion.
The ASX 200 includes many significant mining companies, such as BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG), Mineral Resources Ltd (ASX: MIN), and Pilbara Minerals Ltd (ASX: PLS).
I own Fortescue shares, but my optimism about that company is based on its green energy division rather than its iron ore mining. But I would pick Rio Tinto for its mining credentials. Here's why.
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Increasing focus on green materials
Rio Tinto makes a lot of profit from iron ore, but I'm pleased to see the business is diversifying its earnings base. It has a sizeable aluminium unit and recently acquired a 50% stake in Matalco for US$738 million to become a leader of recycled aluminium supply in North America.
The ASX 200 mining stock has also been growing its exposure to copper. It owns the Kennecott mine in the United States and attempting to progress the Resolution Copper project. It also owns 66% of the Oyu Tolgoi mine in Mongolia, which is one of the largest copper and gold deposits in the world.
According to Rio Tinto, global demand is expected to rise by between 1.5% to 2.5% due to electrification and increasing renewable energy.
The fund manager L1 thinks there are signs the copper price could move closer to "scarcity pricing" over the next few years for two reasons.
On the demand side, there are electrification tailwinds, incremental data centres and AI-related demand, as well as the potential for global manufacturing activity to ease monetary policy.
L1 also suggests there is constrained supply resulting from the "insufficient number of new major mines planned over the next decade and the significant decline of the existing production base."
I think Rio Tinto is well-positioned to benefit from the growing demand for copper over the rest of the decade.
The business also has a small exposure to lithium, and I wouldn't be surprised if it increased its exposure to green commodities further in the future.
African iron ore
Rio Tinto is one of the main miners working on the Simandou project in the south-east of Guinea, which is reportedly the world's largest untapped reserve of high-grade iron ore, estimated at over 2 billion tonnes.
I think Rio's diversification away from being a pure Australian iron ore miner is a good move.
Once completed, Simandou is likely to help Rio Tinto reduce costs, strengthen overall production, and enable good cash flow.
Strong commitment to dividends
The ASX 200 mining stock is "committed to maintaining an appropriate balance between cash returns to shareholders and investment in the business, with the intention of maximising long-term shareholder value."
Rio Tinto's board expects total cash returns to shareholders over the longer term to be between 40% and 60% of underlying earnings in aggregate throughout the cycle. It intends to pay additional returns to shareholders in periods of strong earnings and cash generation.
Ideally, I'd buy Rio Tinto shares at an appealing point in the cycle and then hold for the recovery and receive pleasing dividends over time.
Foolish takeaway
Rio Tinto is a strong miner, and I think it could be a good ASX 200 mining share to hold for the long term.
If I could choose, a price under $120 or even under $110 would be preferred – this would also help the long-term dividend yield.
