Rio Tinto Ltd (ASX: RIO) shares have been on a strong run in recent sessions.
So much so, the mining giant's shares are up 14% over the past two weeks. As a comparison, the ASX 200 index is only up 0.8% during the same period.
The key to this outperformance has been the announcement of major economic stimulus by the Chinese government.
This news sent investors piling into the beaten down sector, seemingly at the expense of the big four banks, which are down heavily over the same period.
But can Rio Tinto's shares keep rising or have they peaked? Let's see what analysts at Goldman Sachs are saying about the miner.
Are Rio Tinto shares heading higher?
According to a note out of the investment bank this morning, its analysts have retained their buy rating and $136.60 price target on the miner's shares.
Based on its current share price of $125.74, this implies potential upside of 8.6% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividend yields of 4.9% in FY 2024 and then 5.1% in FY 2025.
This brings the total potential 12-month return on offer with Rio Tinto's shares to approximately 12.5%.
What did the broker say?
Goldman has been looking at the company's aluminium operations and highlights the strong contribution to earnings they will make in the coming years. Particularly given that "RIO expects global aluminium demand from 98Mt in 2023 to 112Mt by 2028." It said:
We attended RIO's investor tour of their low cost green aluminium smelting assets in Quebec, Canada. RIO owns the world's highest margin aluminium business with an average EBITDA margin of ~30% achieved over the past decade vs. the global average of ~20-25%. These superior margins are driven by RIO's vertical integration and long bauxite position and >60% of metal production powered by over 3GW of low cost hydroelectricity combined with >50% of metal being high value-add-product (VAP). RIO also has one of the world's lowest emission intensity aluminium businesses at ~5t CO2e/t vs. the global average of ~11t with the Canadian smelters at just ~2t.
In light of this, the miner's exposure to aluminium is one of five reasons why it thinks investors should buy Rio Tinto shares. It said:
Our estimates and PT are unchanged. We rate RIO.AX a Buy based on: (1) Compelling relative valuation, (2) Attractive FCF and dividend yield, (3) Strong 2-yr production growth (~5%) from iron ore and copper, (4) Pilbara turnaround (~50% of group NAV), (5) Compelling high margin low emission aluminium exposure.
