The Rio Tinto share price is trading at a ‘compelling’ level: broker

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.

In morning trade, the Rio Tinto Ltd (ASX: RIO) share price is trading slightly lower at $106.40.

Though, shareholders aren’t likely to be too bothered given that the mining giant’s shares have risen almost 17% since this time last month.

Where next for the Rio Tinto share price?

The team at Goldman Sachs believes the Rio Tinto share price has room to climb higher from here.

According to a note, the broker has retained its buy rating and lifted its price target on the miner’s shares to $114.70.

Based on the current Rio Tinto share price, this implies a return of 9% for investors before dividends.

If you include the US$4.18 per share fully franked dividend Goldman expects in FY 2023, the total potential return stretches to 15%.

What did the broker say?

Goldman highlights that Rio Tinto has recently announced an agreement with Wright Prospecting to modernise the 50:50 joint venture covering the large Rhodes Ridge iron ore deposit in the East Pilbara.

Its analysts believe the development of Rhodes Ridge has “the potential to be significant for RIO’s Pilbara business as it could lift system capacity, utilise spare rail and port infrastructure and help close the FCF/t gap with BHP over the medium term.”

In respect to the latter, the broker commented:

BHP has a >US$10 FCF/t gap over RIO due to lower capital intensity (larger orebodies means less replacement mines) and higher grades/margins but Rhodes Ridge could help lower system unit costs and long run capital intensity, and close the FCF gap to BHP by US$6-8/t or by >50% by the end of the decade.

In light of the above and with the Rio Tinto share price trading at a “compelling” ~0.9x NAV, the broker believes it is a great option for investors in the resources sector right now.

The post The Rio Tinto share price is trading at a ‘compelling’ level: broker appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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