Rio Tinto: A Contrarian Play on Iron Ore Headwinds and Copper's Silent Boom

The market's fixation on Rio Tinto's iron ore shipment challenges in FY2025 risks overshadowing a critical truth: the company's copper business is quietly surging, driven by operational excellence and structural demand tailwinds. While investors may be spooked by the reaffirmed lower-end iron ore guidance—323 million tonnes (Mt)—amid cyclone disruptions, the near-term headwinds in iron ore appear overdiscounted. Meanwhile, the underappreciated catalysts in copper, including record production at Oyu Tolgoi and Escondida, suggest Rio Tinto's shares present a compelling contrarian opportunity.

Iron Ore: A Tempest, but Not a Tsunami

Rio Tinto's Q2 iron ore shipments of 79.9 million metric tonnes (Mt), a 1% year-on-year decline, have fueled concerns about its ability to meet even the lower end of its FY25 guidance (323–338 Mt). Cyclones in early 2025 caused an estimated 13 Mt of supply loss, with only half recoverable. Yet, the narrative of terminal weakness in iron ore is premature.

First, production resilience is evident: Q2 iron ore output rose 5% year-on-year to 83.7 Mt, reflecting improved mine health post-cyclone. Second, the company's Simandou iron ore project in Guinea—set to deliver first shipments by November 2025—adds a critical growth vector. Even if shipments in 2025 are minimal (0.5–1.0 Mt), the project's long-term potential (50 Mt annually by 2030) cannot be ignored.

Moreover, the market's China-centric pessimism—focusing on soft property demand and trade tensions—overlooks Rio Tinto's global portfolio diversification. The company's focus on high-margin, lower-carbon iron ore grades (e.g., SP10) also mitigates price risks.

Copper: The Silent Catalyst for Growth

While iron ore faces headwinds, copper is the true engine of Rio Tinto's value creation. Q2 copper production surged 15% year-on-year to 229,000 tonnes, driven by two key drivers:

1. Oyu Tolgoi's Record Ramp-Up: Copper production at Mongolia's Oyu Tolgoi rose 23% year-on-year, with head grades improving to 2.02% in underground operations. The mine is on track to become the world's fourth-largest copper producer by 2030, with production averaging 500,000 tonnes annually through 2036.

2. Escondida's Efficiency Gains: Chile's Escondida delivered a 12% production increase via higher-grade ore zones and improved concentrator throughput. These mines, combined with the Arcadium acquisition's contributions, pushed Rio Tinto's full-year copper guidance to the upper end of its 780,000–850,000-tonne range.

Crucially, copper's structural demand remains robust. The energy transition, EV adoption, and green infrastructure spending are set to boost global copper demand by 30% by 2030. Rio Tinto's cost discipline—unit costs expected at the lower end of $130–$150/tonne—adds margin resilience.

Why Now? The Contrarian Case

The disconnect between Rio Tinto's valuation and its copper upside is stark. Shares trade at 9.5x 2025E EV/EBITDA, near 5-year lows, despite copper's 25% rally year-to-date. Investors appear overly focused on near-term iron ore pain while underestimating:

• Copper's Production Leverage: Every $100/tonne rise in copper prices adds ~$1 billion to Rio Tinto's annual EBITDA. With the LME copper at $8,500/tonne—near 12-month highs—this lever is primed.
• De-risked Balance Sheet: Net debt fell to $4.5 billion in Q2, enabling opportunistic capital returns.
• Strategic Focus: CEO Simon Trott's appointment signals a shift toward high-margin commodities like copper, which now account for ~20% of Rio Tinto's EBITDA (up from 15% in 2020).

Investment Thesis

Rio Tinto's shares offer a rare blend of cyclical recovery (iron ore's trough-to-peak cycle) and secular growth (copper's energy transition tailwinds). The stock is undervalued relative to its copper exposure and production upside. Key risks—China's demand, regulatory hurdles at Simandou—are manageable given the company's execution record.

Recommendation: Buy Rio Tinto on dips below $95/share. A $100 price target (12x 2025E EV/EBITDA) implies 8% upside, with asymmetric upside if copper prices sustain $8,500/tonne.

In an era of macro uncertainty, Rio Tinto's copper narrative—underappreciated but undeniable—deserves a closer look. The iron ore storm may cloud the horizon, but the copper sunrise is already here.

This article reflects an analysis of public data as of July 14, 2025. Past performance is not indicative of future results.