Rio Tinto’s (ASX: RIO) interim 2026 underlying NPAT is 43% up on a year ago, to USD 6.9 billion or USD 4.21 per share, due to higher copper and aluminum prices. It declared a USD 2.11 fully franked interim dividend, also up 43% on an unchanged 50% payout ratio, at the midpoint of its 40% to 60% target range.

Why it matters: The higher dividend is likely why shares are up 4%. Earnings are assisted by a lower-than-expected effective tax rate of 25% for the half compared with previous guidance for around 30%.

  • Management now guides to about 25% for the full year, before returning to around 30% from 2027, with other guidance unchanged.
  • We now assume 26% for the full year, down from 30%, with our 2026 EPS and DPS rising by 5%. Our other estimates are broadly unchanged.

The bottom line: Our fair value estimate remains $125 for no-moat Rio Tinto, with shares expensive. The soaring copper price is likely the main driver. It trades near all-time highs at about USD 6.20 per pound on optimism over rising data center and energy transition demand.

  • This is materially above long-term cost support, which we estimate at around USD 3.80 midcycle from 2030. Higher aluminum prices on supply disruptions caused by the Iran war are also likely another driver, with the iron ore price being broadly stable at about USD 100 per metric ton.

Key stats: Our updated 2026 DPS of USD 4.66 is up 16% on 2025, offering a 4% forward yield at the current share price.

  • Its practice is to target a higher payout in the second half than in the first, and we assume a 55% payout for the full year. Although there is scope for it to be even higher given its balance sheet remains very strong, and the firm has averaged a 60% full-year payout over the last decade.

Between the lines: Stronger prices see copper (36%) and aluminum (20%) comprise more than half of first-half underlying EBITDA compared with around 45% in total last year. Iron ore makes up almost all of the remainder, with lithium immaterial.

Rio Tinto shares expensive with the copper price near record highs but likely to fall longer term

Rio Tinto is one of the world’s largest miners with operations in iron ore, aluminum (including bauxite and alumina), copper, lithium, and minerals (mineral sands, borates, salt, diamonds). Commodity demand is tied to global economic growth, China’s in particular. Rio Tinto benefited greatly from the China boom over the past two decades. The firm’s largest customer by far is China, with about 60% of sales in 2025. We think the outlook is for earnings to decline, with demand for many commodities likely to soften with the end of the China boom, particularly iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment.

It has a large portfolio of long-lived assets with low operating costs, meaning it is one of the few miners profitable through the commodity cycle. Most revenue comes from operations in the relatively safe havens of Australia and North America. The invested capital base was inflated by substantial procyclical investment at the height of the China boom, including overpaying for Alcan. The subsequent iron ore expansion was also made when unit capital costs were high. These factors diluted returns to the point where we struggle to justify a moat. As a commodity producer, it is a price-taker, with the lack of pricing power reflected in cyclical commodity prices.

The recent focus has been to run a strong balance sheet, tightly control investments, and return cash to shareholders. Its purchase of lithium miner Arcadium in 2025 was modest for a firm of its size. It is also focused on winning back the trust of investors, regulators, and indigenous people on whose lands many of its mines are located after the destruction of the Juukan Gorge caves in 2020. Major expansion projects are the Oyu Tolgoi underground mine, Simandou, and expansion of the Pilbara iron ore system’s capacity from 330 million metric tons to between 345 and 360 million metric tons. Those projects are expected to be completed in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs and returns.

Bulls say

  • Rio Tinto is one of the direct beneficiaries of China’s continuing strong appetite for natural resources.
  • The company’s operations are generally well-run, large-scale, low-operating-cost assets. Mine life is generally long, and some assets, such as iron ore, have incremental expansion options.
  • Capital allocation has improved following the missteps of the China boom, with management generally preferring to return cash to shareholders rather than to make material expansions or acquisitions.

Bears say

  • With miners including Rio benefiting from high commodity prices, governments may use it as a source of tax revenue to plug shaky budgets.
  • Rio Tinto is leveraged to demand for iron ore. If iron ore prices fall materially, the company’s earnings will decline significantly.
  • While Rio has shown much-improved investment discipline since its missteps during the China boom, if commodity prices remain high, then the temptation to once again expand aggressively will increase.