Rio Tinto Ltd (ASX: RIO) shares have smashed the market over the last 12 months.
During this time, the mining giant's shares are up 75% to $189.31.
Is it too late to invest? The team at Bell Potter is bullish and continues to recommend the miner to clients.
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What is the broker saying?
Bell Potter has been looking at the mining sector and commodity prices.
With respect to the latter, the broker believes that we are still only at the beginning of a sustained supercycle which will keep commodity prices higher for longer. It explains:
Several megatrends are now colliding with a resource base that has been starved of investment for a decade. We believe new and higher price floors are being established across a basket of commodities. We see this as the early innings of a sustained supercycle. A supercycle is a structural rather than cyclical shift in demand that plays out over many years, globally and broadly at once.
The 2000s cycle was built on China's industrialisation and urbanisation, and was intensive in bulk, fuel-type commodities: iron ore, coal and oil. The cycle now forming is intensive in the materials behind electrification and compute power: copper, aluminium, uranium, lithium, nickel, and rare earths.
Bell Potter believes this will mean durable price floors for key commodities rather than a short-lived cyclical spike. It adds:
Three structural forces are driving it together: the AI capital expenditure boom, global electrification, and deglobalisation. At the same time, supply across several of these commodities is structurally constrained, copper most of all. That constraint is the mechanism that turns strong demand into durable price floors rather than a short-lived cyclical spike.
Why Rio Tinto shares?
According to the note, the broker believes that Rio Tinto is the highest-quality way to gain exposure to copper and aluminium. It said:
Rio Tinto (RIO) offers exposure to our top two commodity picks (copper and aluminium) in a single, large cap name. It is one of the largest Western copper producers — with the Oyu Tolgoi underground ramp lifting group copper volumes through the back half of the decade — and runs the biggest aluminium business of the diversified majors, integrated across bauxite, alumina and smelting.
With a balance sheet that trends towards net cash at spot prices, RIO can fund that copper growth while sustaining its dividend, giving investors leverage to both the electrification/AI copper theme and the aluminium-substitution trade without taking single-commodity risk.
