Will copper growth lift the Rio Tinto share price over £60?

Roland Head takes a look at the share price of FTSE 100 miner Rio Tinto. With a dividend yield of 6.7%, is an upgrade on the horizon?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Tanker coming in to dock in calm waters and a clear sunset

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Rio Tinto (LSE: RIO) share price first hit £60 in 2021. Since then, it’s remained stuck in a trading range that’s seen the stock swing repeatedly between about £45 and £60.

Rio is known for its generous dividends, funded by the profits from its massive, low-cost Australian iron ore mines. But this picture may be starting to change.

The group’s growing copper business looks well positioned to make a stronger contribution to profits in the future. I think it’s worth keeping an eye on this evolving business, which has a well-deserved reputation as a reliable income stock.

Rio confirms copper growth target

In this week’s first-quarter update, Rio Tinto chief executive Jakob Stausholm confirmed that the miner is on track to produce 30%-50% more refined copper in 2024 than it did last year.

Mr Stausholm says that the long-running development of the Oyu Tolgoi underground copper mine in Mongolia is making progress and expected to reach full capacity between 2028 and 2036.

Copper projects are moving forward elsewhere too. Rio’s Kennecott copper mine in Utah, USA, restarted underground production for the first time in 40 years during the first quarter. Projects in Arizona and in Western Australia are also in the early stages of development.

Copper demand could double

Growing demand from sectors such as renewable energy, AI, and electric vehicles means that the world’s appetite for copper is expected to continue growing. Forecasts I’ve seen suggest copper demand could double by 2040.

The copper price has risen by more than 10% so far in 2024 and is approaching record levels. The price of this important industrial metal has now doubled from the lows seen during the 2015/16 mining slump.

Some commodity analysts believe copper supply could fall short of demand over the coming years. If they’re right, miners such as Rio could benefit from a multi-year bull market.

This could happen, but personally I’m always cautious about projections like this. High prices sometimes trigger a reduction in demand. Commodity market conditions are notoriously hard to predict.

Even so, I do think that a repeat of past slumps seems very unlikely at the moment.

Share price outlook

For income investors like me who are tempted by Rio Tinto’s 6.7% dividend yield, the key question is: what could happen next to the shares?

In the short term, I think Rio’s profits could be held back by the iron ore price. Rio generated more than 90% of its earnings from iron ore last year, but its price has fallen by around 25% so far this year.

However, after years of heavy investment, I think that copper will soon start to make a more meaningful contribution to Rio’s earnings.

The latest broker forecasts I’ve seen suggest that that Rio will report adjusted earnings of $7.40 per share this year. This would be slightly ahead of last year’s figure of $7.25.

These estimates price the stock on around nine times earnings and would provide good support for the dividend.

On balance, I think Rio shares could offer long-term value from current levels. However, I suspect that short-term headwinds could mean that the shares remain stuck below £60 for a while longer yet.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Forget Lloyds’ cheap share price! I’d rather consider this FTSE 100 bargain share

Lloyds' share price might appear too cheap to miss at first glance. But this FTSE-listed share could be a better…

Read more »

Market Movers

Down 6% today, is the BT share price gearing up for a larger fall?

Jon Smith points out why the BT share price has tumbled today, but flags up why the reasoning behind the…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

This FTSE 100 stock is down 25% from its 52-week high. Should I buy?

Analysts think the price-to-earnings ratio of this FTSE 100 stock could fall by half in the next two years if…

Read more »

Investing Articles

£10,000 invested in Nvidia stock just two weeks ago is already worth…

Nvidia stock's been making big losses and big gains so far in 2025, at least on paper. But long-term valuation…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Here’s why Lloyds shares have dipped sharply

Lloyds shares got a boost recently when the Treasury petitoned the Supreme Court to go easy on the car loan…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

A £10,000 investment in BAE Systems shares 5 years ago is now worth…

BAE Systems' shares have lifted off since the start of the decade. But can the FTSE 100 defence giant continue…

Read more »

Dividend Shares

£8,000 invested in high-yield dividend stocks could make this amount of passive income

Jon Smith explains how dividend shares with yields in excess of 8% can be used carefully in order to build…

Read more »

Investing Articles

£5,000 invested in Tesco shares 2 years ago is now worth…

Over the last two years, Tesco shares have provided investors with gains of around 30% per year when dividends are…

Read more »