The global lithium (LMF25) market is at a turning point, fueled by the growing demand for electric vehicles (EVs) and renewable energy storage. But 2024 wasn’t an easy year for the industry—lithium carbonate prices dropped 22% due to oversupply and slower-than-expected EV demand in Europe and North America.
Prices fell from $13,160 per metric ton in January to $10,254 by December, a steep drop from their 2022 peak. Even with these challenges, the future looks bright, with global lithium demand expected to hit 1.4 million metric tons of lithium carbonate equivalent (LCE) by 2025, a 53% jump from 2023.
In this context, Rio Tinto (RIO) has made a bold move to strengthen its position in the energy transition space. In October 2024, RIO announced a $6.7 billion deal to acquire Arcadium Lithium (ALTM), a company that produces 75,000 metric tons of LCE annually and plans to double that by 2028. This acquisition puts RIO among the top three global lithium producers and highlights its commitment to diversifying into minerals critical for decarbonization.
The timing is key. While lithium prices are under pressure now, analysts expect a modest recovery in 2025 as production cuts balance the market and EV adoption picks up. With regulatory approvals secured in major markets like the U.S., U.K., and China, RIO is well-positioned to make the most of Arcadium’s assets and expertise. This move not only strengthens its portfolio but also aligns with its broader goal of leading in energy transition materials like copper and aluminum.
As RIO gears up to spin off its new lithium-focused unit, investors are left with an important question: Is this high-yield dividend stock worth buying during such a transformative period? Let’s dive in.
RIO’s Financial Foundation
Rio Tinto (RIO), one of the biggest mining companies in the world, has a diverse portfolio that includes iron ore (IPUF25), aluminum (ALJ25), copper (HGH25), and now a growing focus on lithium. The company’s relies on long-term contracts and efficient operations, which help it maintain steady revenue even when commodity prices swing up and down.
Over the past year, RIO stock has been on a bit of a rollercoaster. It reached a high of $74.24 in May 2024 but dropped to $57.85 in January 2025 — a sharp 17% fall from its peak. Recently, though, the stock has started to bounce back. Year-to-date, it’s up 5.75%. Short-term trends are also looking better, with a 4% rise over the past five trading days.
As Rio Tinto prepares to spin off its new lithium unit, the company’s strong financials provide a solid base for this big transition. In 2024, Rio saw a 13% jump in mined copper production thanks to better output at its Oyu Tolgoi and Escondida mines. Bauxite production grew by 7%, and aluminum output edged up by 1%, though iron ore production dipped slightly by 1% due to challenges at Pilbara.
Overall, the company reported $54 billion in annual sales and $10 billion in net income for 2024. With a forward price-earnings (P/E) ratio of just 9.10x — well below the sector average of 16.42x — Rio looks undervalued, making it an interesting pick for investors looking for steady dividends and growth opportunities in critical minerals like lithium.
RIO’s Growth Blueprint
Rio Tinto is making a bold move with its $2.5 billion investment in the Rincon lithium project in Argentina, which is shaping up to be a key part of the company’s future. Located in the lithium triangle, Rincon is expected to become a major operation, producing 60,000 tonnes of battery-grade lithium carbonate annually by 2028.
Adding to this is Rio’s partnership with Sumitomo Metal Mining (SMMYY) on the Winu copper-gold project in Australia. By selling a 30% stake for $399 million, Rio reduces its risk while tapping into Sumitomo’s expertise. This collaboration could also lead to more opportunities in critical metals like copper and lithium, further boosting Rio’s role in the energy transition.
On top of that, Rio’s dividend remains a strong draw for investors. Its forward yield of 5.79% is well above the materials sector average of 2.82%, and with a payout ratio of 53.32%, it seems sustainable even as the company invests heavily in growth projects.
These moves show Rio Tinto’s balanced approach: rewarding shareholders while positioning itself as a leader in future-facing commodities. For those looking for both steady income and growth potential, RIO’s transformative moves are worth watching closely.
Analyst Sentiments and Market Outlook
Analysts are cautiously optimistic about Rio Tinto as it undergoes this big business shakeup. Of the 11 analysts covering the stock, the consensus is a “Moderate Buy” rating.
The average price target for RIO is $81.08, offering upside potential of 31.7% from its current price as of Jan. 24. Analysts seem to see real growth potential here, likely driven by Rio’s push into high-demand materials like lithium and copper. For example, Tony Paterno of Ord Minnett highlighted the game-changing potential of Rio’s lithium strategy. He notes that combining Arcadium’s assets with RIO’s Rincon and Jadar projects could make the company the world’s third-largest lithium producer by 2035. Paterno also points out that RIO’s management is confident in the long-term growth of the lithium market, which is expected to grow fivefold by 2035.
Conclusion
Rio Tinto’s bold pivot toward lithium and other future-facing commodities, combined with its solid financials and attractive dividend yield, makes it a compelling option for investors seeking both income and growth. While the stock has faced recent volatility, the company’s strategic moves and analyst optimism signal potential upside. For those willing to ride out the near-term uncertainties, RIO could be a rewarding play ahead of its transformative business shakeup.
