Rio Tinto Ltd (ASX: RIO) shares are marching higher today.
Shares in the S&P/ASX 200 Index (ASX: XJO) mining stock closed yesterday trading for $111.70. In early afternoon trade on Friday, shares are changing hands for $112.71 apiece, up 0.9%.
For some context, the ASX 200 is down 0.8% at this same time.
Today's gains follow on yesterday's hefty losses.
Rio Tinto shares dropped 3.6% on Thursday following the release of the miner's half-year results.
ASX investors were favouring their sell buttons after the company reported a 16% year-on-year decline in its underlying earnings for the six months to US$4.8 billion. Most of that fall was due to lower earnings in its Iron Ore division, which was impacted by lower iron ore prices and several cyclones.
In unwelcome news for passive income investors, this led to a 16% cut in Rio Tinto's fully franked interim dividend to US$1.48 a share. That's the lowest interim dividend payout from the miner since 2018.
What was Macquarie's take on the half-year results?
Following the half-year update, the analysts at Macquarie Group Ltd (ASX: MQG) ran their slide rule over Rio Tinto shares.
Macquarie noted that outgoing Rio Tinto CEO Jakob Stausholm's final half-year result was in line with debt expectations, with earnings before interest, taxes, depreciation and amortisation (EBITDA) beating by +2%.
The broker said, "With RIO's powder spent on lithium, productivity and simplification are key for new CEO Simon Trott to return RIO to its former glory."
The half year saw the ASX 200 miner complete its acquisition of Arcadium and form Rio Tinto Lithium. But that came with a price, with the miner reporting, "Further investment is being made to develop our lithium business, resulting in negative free cash flow [in its Minerals segment] of $0.7 billion."
On the positive front for Rio Tinto shares, Macquarie pointed to the miner's copper financials. According to the broker:
Rio reported a US$0.6b beat (+23%) on the divisional Cu EBITDA line on lower costs. RIO has now guided to 14% lower costs for the remainder of CY25 as Escondida continues to perform, OT continues its ramp up and Kennecott continues its productivity drive
But Macquarie was a lot less enthusiastic about Rio Tinto's Minerals segment.
The broker said:
Undoing all of Cu good work was the Minerals & Other segments, where the RTIT and RTIOC missed by ~US$0.2b collectively. Additionally, US$0.3b of one-off restructuring costs were a detractor while lithium made a loss at the EBITDA line.
We think a Portfolio simplification mantra could deliver value via reducing earnings volatility and risk.
Are Rio Tinto shares a buy, hold, or sell?
Connecting the dots, Macquarie said, "Key questions remain for RIO in how it catches up on productivity, resolves the Chinalco overhang and undertakes portfolio simplification."
The broker added, "We maintain our BHP Group Ltd (ASX: BHP) preference over RIO, but look forward to Mr Trott's simplification agenda."
Macquarie maintained its neutral (hold) rating on Rio Tinto shares, but upped its price target by 3% to $109.00 a share.
