Rio Tinto Ltd (ASX: RIO) shares have taken a hit this year, dropping 15% into the red in a world where equity markets have soared to new highs.
The stock closed the session on Wednesday at $115.90 apiece. The mining giant has been weighed down by a mix of challenges, including weaker Chinese demand for resources, environmental concerns, and cautious investor sentiment.
Despite this, analysts see potential opportunities, pointing to production growth and attractive dividends.
With all that's going on in the world, here we'll take stock of where we are at with Rio Tinto shares.
Tackling environmental challenges
Rio Tinto shares have been under pressure due to a declining commodities market that has blown off steam from its 2022 highs.
But the miner also faces mounting pressure over water use in Western Australia's Pilbara region.
Traditional owners are urging the government to reduce groundwater extraction, citing environmental and cultural concerns, according to The Australian Financial Review.
In response, Rio is exploring a $400 million desalination plant near Dampier. This project would double its desalinated water capacity, easing reliance on groundwater.
A company spokesperson emphasised Rio's commitment to respecting cultural heritage. Per The AFR:
We want to find water solutions that respect deep cultural connections to country, while supporting our communities. We'll keep working with traditional owners and all our partners to make sure we get this right.
China's economic impact on Rio Tinto shares
China's economic challenges continue to affect Rio Tinto shares as well. Weak property markets, high local government debt, and limited stimulus measures have hurt commodity demand in the region.
As China accounts for a significant portion of Rio's iron ore sales, these issues have likely weighed on the company's share price.
But some analysts believe conditions could stabilise. If China introduces more substantial economic support, it may boost demand for Australian commodities.
Goldman Sachs is one that remains optimistic about Rio Tinto shares. The broker has a buy rating and a price target of $136.20 on the stock.
According to Goldman, Rio Tinto's production growth is lifting, driven by its Oyu Tolgoi copper mine and new Pilbara iron ore projects.
These expansions, along with a recovery in aluminium production, are expected to boost free cash flow.
Goldman also highlights Rio's dividend yield of 5.65% at the time of writing, which might provide additional appeal for income-focused investors.
Foolish takeaway
Rio Tinto shares are under pressure, but experts say there's still room for optimism. The mining giant's position in core commodity markets means it isn't going anywhere.
Its stock price is, however, sensitive to fluctuations in the broad commodity markets.
Over the past year, Rio Tinto is down 7%.
