Rio Tinto shares (ASX:RIO) have fallen behind on the year today, with a 1% decline on the day bringing the stock to a close at $117.50. Holders have been treading water so far this year, with a 0.60% decline leaving shares close to where they started in 2025. The share price has also been trading within a modest range over the past year, down 3.13% in 12 months as the company looks to make some changes. Analysts continue to see upside from here, but what will drive the stock in the year ahead?

Rio Tinto’s financial bedrock remains its iron ore operations, particularly its highly efficient, low-cost mines in Western Australia’s Pilbara region. This dominance, while historically profitable, makes the company’s fortunes intrinsically linked to the cyclical swings of the iron ore market. Recent softening in Chinese demand, coupled with concerns about global economic growth, presents a headwind that Rio Tinto must carefully manage. The previous quarter’s (Q4 2024) EPS miss – $4.99 versus a forecast of $5.09 – and the significant 24.09% year-over-year decrease, serve as a reminder of this vulnerability.

However, Rio Tinto is not standing still. The company’s strategic shift towards battery metals (like lithium) and copper is a crucial element of its long-term vision. This diversification is not merely a hedge against iron ore volatility; it’s a calculated bet on the accelerating global energy transition. The surging demand for electric vehicles and renewable energy infrastructure is creating a structural, long-term increase in demand for these “future-facing” commodities. Rio Tinto’s investments in these areas signal its intent to be a major player in this evolving market, a move that should resonate with long-term investors.

Beyond the commodity markets, Rio Tinto is also facing pressure from within. The recent shareholder proposal from Palliser Capital, urging the company to collapse its dual-listed company (DLC) structure into a single Australian entity, highlights a simmering debate about corporate efficiency and shareholder value.

Palliser’s claim of significant value erosion due to the DLC structure, although disputed by Rio Tinto’s board, adds a layer of complexity to the company’s narrative. The board’s staunch opposition to the proposal, deeming it “wholly duplicative” and potentially harmful to shareholder interests, sets the stage for a potentially contentious shareholder vote. The parallel with BHP’s successful unification adds further weight to the discussion.

 

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Financial Metrics and Analyst Forecast

From an investor’s perspective, Rio Tinto presents a mixed bag. The attractive 5.16% dividend yield, fully franked, provides a steady income stream, particularly appealing in the current low-interest-rate environment. The relatively modest P/E ratio of 10.67 suggests the stock is not expensive.

Some analyst reports find the stock to be undervalued by 21% with a price target $151.07 AUD. The consensus of $130.89 also reflects a perceived upside of more than 10% from current price action. However, the upcoming Q2 2025 earnings report (due July 30, 2025) will be a crucial test. The consensus EPS forecast of $5.38, lower than the previous year’s $5.59, reflects ongoing concerns about short-term headwinds.

Rio Tinto is somewhat of a company in transition. It possesses a strong foundation in iron ore, a potentially lucrative (but volatile) asset, whilst the strategic diversification into battery metals and copper positions it for future growthy. Careful consideration needs to be taken in regards the risks and rewards, paying close attention to commodity price trends, the progress of the diversification strategy, and the outcome of the shareholder vote on the DLC structure. A firm break above $120 that holds with higher than average volume could be an early sign of a move to the upside, with the $110-$115 range a level to pay attention to on the downside