Rio Tinto just locked in a major deal. Here’s why investors are buying today

The Rio Tinto Ltd (ASX: RIO) share price is pushing higher on Wednesday after the mining giant released a major update before market open.

At the time of writing, Rio Tinto shares are up 2.18% to $147.56.

Despite today’s gain, the stock remains under pressure in the short term, down close to 8% over the past month.

Here’s what the company announced.

Landmark deal secures smelter future

According to the release, Rio Tinto has partnered with the Queensland and Commonwealth governments to secure the long-term future of the Boyne aluminium smelter in Gladstone.

The agreement includes up to $2 billion in government support over 10 years through to 2040. This builds on earlier power purchase agreements (PPAs) signed by Rio Tinto, which underpin around $7.5 billion in new renewable energy projects.

The deal is aimed at ensuring the smelter remains internationally competitive once its current power contract expires in 2029.

Boyne Smelters is a key asset in Rio Tinto’s aluminium division and plays a central role in its broader Australian operations. The facility is one of the largest aluminium smelters in the country and supports thousands of jobs across the supply chain.

Management noted the agreement will allow the smelter to transition towards lower-cost and lower-emissions energy over time.

Shift towards renewable energy

A key part of the announcement is Rio Tinto’s continued move towards renewable energy to power its aluminium operations.

The company has already contracted more than 2.8GW of renewable energy capacity in Queensland, alongside over 600MW of storage.

This includes projects such as the Upper Calliope solar development, the Bungaban wind project, and the Smoky Creek and Guthrie’s Gap solar and battery system.

In addition, Rio Tinto has agreed to purchase 40% of the output from the Lower Wonga solar and battery project.

These developments are expected to provide a more stable and potentially lower-cost energy mix over time. They also reduce exposure to fossil fuel pricing.

What’s driving the share price higher?

The share price gain suggests investors are reacting positively to the added long-term certainty from the agreement.

Aluminium production is energy-intensive, and securing a reliable and competitive power supply is critical to maintaining margins.

The deal reduces a key risk for Rio Tinto ahead of the 2029 contract expiry and supports the continued operation of a major asset within its portfolio.

It also aligns with the company’s broader strategy to decarbonise its operations while maintaining output.

Foolish Takeaway

Rio Tinto’s latest agreement strengthens visibility over one of its key aluminium assets and reduces uncertainty around future energy costs.

While the stock has pulled back in recent weeks, this morning’s update shows the company is progressing its long-term initiatives.

The post Rio Tinto just locked in a major deal. Here’s why investors are buying today appeared first on The Motley Fool Australia.

More reading

• ASX mining shares have slumped but long-term outlook is positive
• 5 things to watch on the ASX 200 on Tuesday
• Why EOS, Latitude, Northern Star, and Rio Tinto shares are falling today
• 2 ASX mining stocks that could rise 60% to 100%+
• Should you buy the dip on ASX mining shares?

Motley Fool contributor Aaron Teboneras 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.