Rio Tinto Ltd (ASX: RIO) shares could be a top option for investors looking for mining sector exposure.
That's the view of analysts at Goldman Sachs, which are feeling bullish on the mining giant.
What is Goldman saying about Rio Tinto shares?
According to the note, the broker was pleased with the miner's joint venture announcement this week. It said:
Rio Tinto has signed a JV with Chilean state owned copper miner Codelco to develop the high grade 1,000ppm Li (mg/l) Maricunga salar in the Atacama region in Chile. We first highlighted the potential for a RIO/Codelco lithium in 2023 and wrote extensively on the Maricunga salar, economics and possible RIO/Codelco JV in our feedback report post our Chilean mining tour in late 2024. The Maricunga salar is just 30-40km from the Nuevo Cobre copper JV with Codelco; RIO is likely exploring development with infrastructure synergies across the copper JV as well as its lithium footprint in Argentina.
Goldman also highlights that this agreement fits with the company's focus on creating value from early stage exploration and strategic joint ventures. It adds:
RIO is focused on creating value for shareholders through early stage exploration and strategic JVs at the asset level, as demonstrated by the Rincon lithium and copper JV with Codelco on the Nuevo Cobre project, and now the Maricunga JV aligns with the company's growth & value creation strategy.
Time to buy
The note reveals that Goldman has retained its buy rating and $140.80 price target on Rio Tinto's shares.
Based on its current share price of $119.84, this implies potential upside of 17.5% for investors over the next 12 months.
In addition, the broker is forecasting dividend yields of approximately 6% for investors in FY 2025 and FY 2026. This brings the total potential 12-month return to over 23%.
Commenting on its buy rating, Goldman said:
Relative valuation: trading at ~0.7x NAV (A$169/sh) vs. peers (BHP ~0.7x NAV and FMG ~0.9x NAV) and ~5.7x NTM EBITDA at GSe base case, below the historical average of ~6-7x.
RIO is a FCF and production growth story in our view, with forecast Cu Eq production growth of ~4-5% in 2025 & 2026 driven mostly by the ramp-up of the Oyu Tolgoi UG copper mine & a recovery at Escondida, higher Pilbara Fe shipments with the ramp-up of new mines, and a rebound in aluminium production. We forecast RIO's Cu Eq production to grow by ~20% and EBITDA by >30% by 2030.
