Down 8% in a month, could Rio Tinto shares be worth digging into?

The Rio Tinto Limited (ASX: RIO) share price hasn’t had a good month, down 7.6%.

Shares of the mining giant closed Thursday at $91.86 each, a gain of 2.74% on the day.

S&P/ASX 200 Metals and Mining Index (ASX: XMJ) also closed 2.75% higher, reclaiming some of its recent losses. It’s now down less than 2% over a month.

Some of Rio’s industry peers are also faring worse than the broader index. The BHP Group Ltd (ASX: BHP) share price is down 4.9% over the past month while shares in Fortescue Metals Group Ltd (ASX: FMG) are down 11.45% over the same period.

But one broker believes Rio Tinto could shoot to new heights and there have been some positive developments for the company in the background. Let’s have a look.

The possible upside for Rio Tinto shares

Last Friday, Goldman Sachs held its buy rating with a price target for Rio shares of $121.50. This means a 33% potential upside at the time of writing.

Goldman’s thesis hinges on Rio’s acquisition of Canadian miner Turquoise Hill, the co-owner of the Oyu Tolgoi copper and gold mine in Mongolia. Rio entered into a definitive arrangement agreement to acquire Turquoise Hill on Tuesday.

Goldman said:

If approved the Transaction is expected to close shortly thereafter and will give RIO a 66% interest in Oyu Tolgoi [OT] (vs. the current 34% effective ownership) with the remaining 34% owned by Mongolia, simplifying the ownership structure, and allowing RIO to work directly with the Government of Mongolia to progress the project, while also strengthening RIO’s copper portfolio.

OT is one of RIO’s most important growth assets as, at its current ownership, we estimate the project will double RIO’s earnings from copper to over 25%, will be long life (+40yrs), low cost (1st quartile), has +50% expansion potential, and in our view is under explored.

Rio Tinto offered $C43 per share to purchase the remaining shares of Turquoise Hill last Thursday. The Turquoise board is now encouraging minority shareholders to vote with it to accept Rio’s final offer.

Bullish signs from Chinese commodity imports

On a broader level, recently published Chinese commodity data from Australia and Zealand Banking Group Ltd (ASX: ANZ) shows that China is importing significantly higher amounts of copper and copper ore on a year-over-year basis.

Copper imports increased 26.4% over the period, while copper ore was up 20.4%. The rise in copper imports was said to be led by demand from the energy sector and amid lower prices for the metal.

Meanwhile, iron ore imports contracted 1.32% amid ongoing COVID-19 lockdowns in China.

Rio Tinto share price snapshot

The Rio Tinto share price is down 8.24% year to date. For context, the S&P/ASX 200 Index (ASX: XJO) has also lost around 8% over the same period.

Rio’s market capitalisation is approximately $34 billion.

The post Down 8% in a month, could Rio Tinto shares be worth digging into? appeared first on The Motley Fool Australia.

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More reading

• Why are ASX 200 mining shares getting blasted on Wednesday?
• Rio Tinto share price lower despite Turquoise Hill agreement
• Own Rio Tinto shares? Here’s why the CEO just met with China Mineral Resources
• Why are ASX 200 mining shares getting hammered on Friday?
• What’s the outlook for ASX 200 copper shares in September?

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs and Life360, Inc. 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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