Rio Tinto's Copper Re-Rating Splits Fund Managers on How Much Further It Runs

Rio Tinto re-rated from a single-digit price to earnings multiple to around 15 to 16 times through 2026, as surging copper prices turned the miner into one of the market's preferred ways to invest in AI-driven infrastructure demand, taking the shares from around $122 to a May peak near $188. Since then a mix of profit-taking, softer iron ore prices and renewed speculation about a Glencore transaction has pulled the stock back into the $168 to $172 range, with fund managers now debating whether the re-rating has room left or has already priced in the good news.

Copper turns Rio into an AI infrastructure play

Hyperion Asset Management added Rio Tinto to its portfolio in May on the view that the physical infrastructure underpinning the AI economy, data centres and energy buildout, creates a compelling multi-decade demand cycle for high-quality resource businesses with critical minerals exposure. Blackwattle Investment Partners made a similar case, pointing to a structural global copper deficit and rising demand from clean energy and AI-related infrastructure, with Rio's substantial copper production base providing direct exposure to that theme. Perennial Partners framed the iron ore business, still trading above US$100 a tonne, as effectively a cash cow now funding the years of copper growth ahead, while Wilson Asset Management noted resilient production across key commodities despite weather disruption to Pilbara iron ore shipments, alongside an improving sentiment backdrop toward the Chinese economy.

A rich re-rating draws sellers

Not every manager wanted to keep chasing the rally. Maple-Brown Abbott moved to sell in July, noting that twelve months earlier Rio traded on a single-digit price to earnings multiple of eight or nine times, and now sits on 15 or 16 times depending on the commodity price assumptions used, a substantial re-rating at a time when iron ore, copper and aluminium, which together make up more than half the business, are all trading well above its long-term price estimates. It also flagged renewed speculation about a Glencore transaction and a risk that the discount between Rio's dual-listed share classes could compress in either direction.

Alphinity Investment Management held at a trimmed position, staying constructive on the commodity mix and welcoming a new chief executive expected to pursue cost reductions and asset sales, but flagging concern about cost pressure emerging over the next reporting season and about the Glencore deal potentially returning, worried that some of the assets involved would not be well managed under Rio's ownership. Alliance Bernstein simply trimmed to take profits after a strong run of outperformance.

August brings mixed signals: a clean result, then a step back

Pendal Group described a better than expected first-half result in August, with earnings per share beating by 3 percent on lower tax, free cash flow of US$3.8 billion equating to a 5 percent annualised yield, and the highest interim dividend since 2022 at an unchanged 50 percent payout ratio. Guidance was unchanged barring tax, but Pendal read the result as a return to the simplification strategy outlined late the previous year, underscoring that Rio has moved on from the Glencore discussions, with asset sales expected to bring in US$5 billion to US$10 billion over the following 18 months and a continued commitment to adding copper growth options.

A separate August update was more mixed for sentiment even where the news itself was positive. Pendal noted Rio secured a new long-term power contract at its Tomago aluminium smelter, backed by $2.5 billion of New South Wales and federal government support, securing electricity supply through to 2038 with full renewables from 2033, a deal that locks in below-market power prices for the smelter even though the stock fell on the day. Blackwattle Investment Partners pointed to a broader iron ore price headwind behind that kind of weakness, citing a prolonged China property downturn, buying pressure from China's state-backed resources purchasing group, and rising global supply as Guinea's Simandou project ramps up.

What fund managers are watching next is whether the US$5 billion to US$10 billion asset sale program materialises on schedule, how much cost pressure shows up in the next reporting season, whether Glencore speculation resurfaces in a more concrete form, and whether copper's structural demand tailwind can keep offsetting a softer iron ore price backdrop as Simandou supply ramps up against a still-uncertain China property recovery.