VALUATION HIGHLIGHTS

1. Iron Ore constitutes 68% of the Trefis price estimate for Rio Tinto's stock.
2. Aluminum constitutes 17% of the Trefis price estimate for Rio Tinto's stock.
3. Copper constitutes 11% of the Trefis price estimate for Rio Tinto's stock.

WHAT HAS CHANGED?

Latest earnings

For H1 2025, Rio posted sales of $26.87 billion, almost flat compared to the same period in the previous year. EPS also deteriorated to $2.79 from $3.58 in the previous year. While the company saw higher production and price realizations for copper, this was partly offset by lower production and prices in its iron ore business.

Trade tensions with China

Tariffs on imported metals could have a mixed impact on Rio Tinto. On one hand, higher duties on foreign steel and aluminum in key markets like the U.S. may boost demand for domestically produced raw materials, indirectly benefiting Rio’s iron ore and aluminum segments. On the other hand, if trade tensions escalate, they could slow global economic growth and reduce demand for industrial commodities, pressuring prices. Additionally, tariffs on Rio’s own exports to certain countries could raise costs for buyers, making its products less competitive. Overall, the effect will depend on how widespread and lasting the tariffs are, and whether they lead to a broader slowdown in global trade.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Rio Tinto's value that present opportunities for upside or downside to the current Trefis price estimate for Rio Tinto:

Average realized prices of Iron Ore

• Average realized prices of iron ore: Average prices per ton rose from around $54 in 2018 to $112 in 2021. The metric fell to about $87 in 2022 and stood at $88 in 2023. The prices have fallen sharply to $79 in 2024. We expect the number to drop further in the short term before stabilizing at $83 levels. However, if prices rise to over $100, there could be a 15% upside to our price estimate. On the other side, if prices fall to about $70, there could be a 15% downside to our price estimate.

BUSINESS SUMMARY

Rio Tinto Group is a diversified mining and resources group, headquartered in London and Melbourne. The company has operations across six continents, but these are mainly concentrated in Australia and Canada. The company has many subsidiaries, each focusing on one of the different product types in the company's portfolio. The company has a principal focus on mining primary ore for metals. It also owns several high-capacity smelting facilities for aluminum and refining facilities for copper & gold.

SOURCES OF VALUE

The company's Iron Ore division is the most valuable division for the following reasons:

• The iron ore segment accounts for around 50% of the company's revenues and over 66% of its EBITDA. These numbers may decline only marginally over the next few years. The division will still contribute a majority of the company's profits.
• The company has long-term contracts with iron and steel manufacturers worldwide, securing the interests of its mining operations.

KEY TRENDS

Lithium projects

Rio Tinto is making significant moves in the lithium sector, positioning itself as a major supplier of battery materials for the energy transition. The company has committed a $2.5 billion investment to expand its Rincon Lithium Project in Argentina, aiming to reach a production capacity of 60,000 tonnes of lithium carbonate per year. The expansion includes a 57,000-tonne plant addition to the existing 3,000-tonne starter plant, with production expected to begin in 2028 and ramp up over three years.

Aluminum as a replacement for other materials and metals

• Aluminum is lightweight and its use in cars can help reduce weight and thus emissions.
• Aluminum is durable and requires lower maintenance (corrosion resistant) compared to other metals and is hence finding its applications in the construction industry.
• The unique characteristics of aluminum, such as malleability and ductility, help in the fabrication, storage, and distribution of retail products. It is thus being widely used in the packaging industry as well.