Own Rio Tinto shares? Here's your Q2 preview

Will the mining giant outperform expectations next week?

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If you own Rio Tinto Ltd (ASX: RIO) shares, then you will no doubt be aware that it won't be long until the mining giant releases its highly anticipated quarterly update.

Ahead of the release on Tuesday 16 July, let's take a look at what the market is expecting from the miner's second quarter update.

Rio Tinto Q2 preview

According to a note out of Goldman Sachs, its analysts believe that Rio Tinto will fall short of expectation for iron ore shipments during the quarter.

This is because of a train derailment early in the quarter. However, the good news is that it thinks the company will be able to make up for this in the second half and achieve its guidance. It explains:

[W]e expect RIO's 2Q Pilbara iron ore shipments of 79Mt vs Consensus 82Mt as a result of train derailment early in the Q. However, we think RIO can make up the lost shipments in 2H, and we model 330Mt (vs. 332Mt in 2023), in the middle of the 323-338Mt guidance range. We expect realised prices of US$107/dmt for 1H24. RIO will provide 2025 guidance for all commodities in Jan 2025.

For copper, Goldman Sachs is forecasting production of 180kt for the three months. This is ahead of the consensus estimate of 175kt. In addition, the broker expects that Rio Tinto's realised copper price will be higher than the market thinks at US$412 per pound (compared to US$395 per pound).

It is a similar story for aluminium, with Goldman expecting Rio Tinto to report production of 832kt (cons. 829kt) and a realised price of US$2,818 per tonne (cons. US$2,770 per tonne).

At the end of the period, the broker expects this to leave the mining giant with a net debt position of US$4.9 billion versus the consensus estimate of US$4.5 billion.

Should you buy Rio Tinto shares?

Goldman continues to see value in Rio Tinto shares at current levels. It has a buy rating and $137.00 price target on them, which implies potential upside of almost 14% from current levels.

Commenting on its bullish view, the broker said:

We remain Buy rated on: (1) compelling relative valuation vs. peers, (2) attractive FCF and Div yield, (3) strong production growth in 2024-2025E of ~5% CuEq 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, (4) potential for FCF/t improvement in the Pilbara, and (5) high margin low emission aluminium business.

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.

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