Rio Tinto Shares Dip: Iron Ore Headwinds, Analyst Downgrades Weighs on Bulls

Rio Tinto shares (LON:RIO) dipped 1% today, as markets picked through H1 results, and a downgrade from Deutsche Bank analysts on the day.

While the mining giant reported a 16% dip in underlying profits to $4.81 billion, the lowest first-half figure in five years, the diversification strategy is beginning to bear fruit, particularly in copper and lithium. The company declared an interim dividend of $2.4 billion, maintaining its 50% payout ratio, in a move that appeased income investors.

The primary driver of the profit decline was a 13% fall in iron ore prices, stemming from a combination of oversupply and softening demand from China, a key consumer of the commodity.

This price pressure directly impacted Rio Tinto's Pilbara iron ore operations in Western Australia, where unit costs also rose from $23.2 to $24.3 per wet metric ton due to lower shipment volumes and cyclone-related disruptions earlier in the year.

Despite these challenges, CEO Jakob Stausholm emphasized the company's “very resilient financial results,” attributing them to “an improving operational performance helped by our increasingly diversified portfolio.”

Indeed, Rio Tinto's strategic shift away from over-reliance on iron ore is bearing fruit.

The company reported a 6% year-over-year increase in copper equivalent production, fueled by record production at the Oyu Tolgoi copper mine in Mongolia. This performance demonstrates the success of the ongoing underground mine ramp-up. Furthermore, the bauxite segment achieved record first-quarter production, with the Amrun mine exceeding its designed capacity.

Off the back of earnings, RIO was downgraded by Deutsche Bank from Buy to Hold, with the price target lowered to 5,100p (was 5,300p). The analyst keeps Rio Tinto as it's preferred ‘iron ore major' but see's downside to the market in the coming months.

A key strategic move in H1 2025 was the completion of the $6.7 billion acquisition of Arcadium Lithium, creating Rio Tinto Lithium and instantly positioning the company as a major player in the lithium market. The company further solidified its lithium ambitions by partnering with Chilean state-owned Codelco to develop a lithium mine in northern Chile, investing $900 million and acquiring a significant stake in the operation.

Looking ahead, Rio Tinto anticipates Pilbara iron ore shipments to be at the lower end of its guidance range due to the impact of cyclones in Q1. However, the company maintains its overall production guidance for the year, with bauxite and copper production expected to exceed expectations.

Capital investment guidance remains unchanged at approximately $11 billion for 2025, reflecting the company's commitment to disciplined growth and project execution.

Analyst Summary: Bull and Bear Cases