Rio Tinto Ltd (ASX: RIO) shares are up a fraction in early trade today.
Shares in the S&P/ASX 200 Index (ASX: XJO) iron ore stock closed yesterday trading for $129.27. In morning trade on Friday, shares are changing hands for $129.28 apiece, up 0.01%.
For some context, the ASX 200 is down 0.3% at this same time.
Taking a step back, Rio Tinto shares are up 8.6% over 12 months. The ASX 200 miner also paid two fully franked dividends totalling $5.933 a share over the full year. At the current share price, that sees Rio Tinto stock trading on a fully franked trailing dividend yield of 4.6%.
Rio Tinto has enjoyed an exceptionally strong run over the past four months amid strong global demand for iron ore and copper, spurred by early signs of a recovery in China's sluggish economic growth.
That's helped send shares in the ASX 200 mining stock up 26% since 20 June.
At US$105.30 per tonne today, iron ore prices are up 5% since 2 January. Iron ore plumbed lows of US$93.00 per tonne in early July, with many bears then predicting it would continue lower to trade below US$90 per tonne.
As for copper, the red metal is currently trading for US$10,647 per tonne, up 21.4% from the US$8,768 per tonne copper was fetching on 2 January, according to data from Bloomberg.
Which brings us back to our headline thesis.
Image source: Getty Images
How Rio Tinto shares could surge more than 50%
In a new report this week, Macquarie Group Ltd (ASX: MQG) outlined the significant potential upside for Rio Tinto shares if the current spot prices for iron ore and copper are maintained through 2026.
The broker noted that spot prices are 24% higher for iron ore and 14% higher for copper than its existing estimates for calendar year 2026.
"With the tariff rhetoric invoking a bulk, base and new energy pull back, there is still spot upside to consensus and MQe," Macquarie added.
Under its existing estimates, Macquarie has a neutral rating on Rio Tinto with a $115.00 price target on its shares. That's 11.0% below the current share price. Macquarie also estimates a dividend yield of 5.9%.
However, if spot prices for Rio's primary commodities remain at today's levels, Macquarie's price target for the ASX 200 mining stock rises to $192.00, or 48.5% above current levels. And the broker's forecast Rio Tinto dividend yield rises 7.8%.
Commenting on the risks to its base case and spot case assumptions for Rio Tinto shares, Macquarie noted:
Movements in iron ore, aluminium, and copper prices present the most significant upside and downside risks to our earnings forecasts and valuation. We make assumptions within our forecasts for production, capex, and opex in addition to exchange rates. Variances in these assumptions versus our base case present material risks both to the upside and downside to earnings forecasts and valuation. Thematically, the accelerating ESG momentum and potential carbon tax could introduce further valuation downside risks, which are reflected in a higher cost of borrowing and multiple compression.
Essentially, the future is by definition unknown.
What we do know is that if spot prices for copper and iron ore persist, or track higher, Rio Tinto shares should be among the top ASX mining stocks to benefit.
