Is the Rio Tinto Share Price a Bargain Ahead of Earnings?

Rio Tinto share price is not having a good year amid heightened risks about China slowdown. The stock has crashed by about 25% from its highest level this year and is now trading at the lowest point since September 29. Other mining stocks like Anglo American, Barrick Gold, and Newmont have also crashed hard this year.

Is Rio Tinto a good buy?

Rio Tinto is one of the biggest mining companies in the world. The firm mines commodities like iron ore, aluminum, copper, lithium, and borates among others. Rio is a notable company because it makes more than half of its revenue in China.

As such, the Rio Tinto share price has plunged this year because of the ongoing concerns about the Chinese economy. With the Covid-zero strategy continuing, and with the country’s deleveraging going on, analysts expect that the company’s growth and profitability will come under intense pressure in the coming months.

As such, the upcoming Rio Tinto earnings will provide color about the state of the company. There are several catalysts for Rio Tinto. First, the company has a stellar balance sheet now that it has paid most of its debt. It has a net debt of just $300 million, which is much lower for a company of its size. 

Second, the company has an attractive dividend yield. Rio Tinto pays a variable dividend after every six months. This dividend is usually keyed to its profit. As a result, its 9.2% dividend yield is highly encouraging. 

Third, Rio Tinto is also highly undervalued considering that it has a forward PE ratio of 6.0, which is lower than other popular mining companies. Most importantly, the US dollar will likely not maintain its strength forever and is expected to start retreating in the coming months. If this happens, the dollar will likely boost commodity prices and Rio Tinto.

Meanwhile, Rio Tinto’s iron ore is still profitable. Iron ore price has dropped by more than 60% from its highest point this year to about $100 per metric ton. Its production and transport cost to China averages about $40, meaning that it is still making about $60. 

Rio Tinto share price forecast

The daily chart shows that the Rio Tinto share price formed a triple-top pattern that is shown in green. This pattern is usually a bearish sign. It has also moved slightly below the neckline of this pattern at 5,030p. The stock has also formed an ascending channel while the MACD is pointing downwards. 

Therefore, in the near term, there is a likelihood that the stock will continue falling as sellers target the next key support at 4,446p. In the long term, a bullish breakout will likely happen due to the catalysts mentioned above.

Rio Tinto share price