Jefferies has downgraded Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF) to 'Hold' from 'Buy', citing emerging headwinds including CEO succession uncertainty, increasing geopolitical risks, and concerns over rising capital intensity in the company’s lithium investments.
“Of the major diversified miners in our coverage, we prefer Glencore, Anglo American and Vale over Rio and BHP,” Jefferies wrote in a note.
Analysts did say that they do not view Rio as fundamentally flawed, but see limited upside given current risks.
Several factors behind the downgrade, starting with the impending departure of CEO Jakob Stausholm. Reports suggest the company’s board is seeking a successor who can improve operational performance, with potential candidates including Rio Iron Ore CEO Simon Trott and Rio Aluminum CEO Jérôme Pécresse.
“Until the new CEO is announced, the strategic direction of Rio will be a risk,” the analysts warned.
Jefferies also flagged concerns about Rio’s growing exposure to lithium. The company completed its acquisition of Arcadium earlier this year and holds interests in several lithium projects. While the investments could be countercyclical, Jefferies warned of rising capital intensity and limited near-term earnings benefit.
“We are concerned about the risk of rising capital intensity and potentially low returns if Rio's view on lithium proves to be too optimistic,” the analysts wrote.
On iron ore, Jefferies maintained a neutral stance but expects near-term prices to soften amid continued weakness in China’s property market, seasonal demand fluctuations, and potential steel production cuts. The firm modeled a third-quarter iron ore price of $90 per tonne, down from current spot prices of $95/t.
The brokerage also highlighted mounting geopolitical pressures. US plans to raise aluminum tariffs to 50%, including on imports from Canada—where Rio is a major producer—are expected to weigh on earnings, offsetting any benefit from higher regional pricing. Meanwhile, potential copper tariffs under Section 232 could provide a small boost to Rio’s Kennecott operations in the US.
Jefferies noted that political developments in Mongolia may pose additional risks for the Oyu Tolgoi copper-gold mine. Although no major changes are expected, the analysts said “the risks there appear to be rising” as Oyu Tolgoi is set to become a more significant contributor to Rio’s earnings.
Still, the firm concluded that the combination of strategic, operational, and macro risks makes Rio’s risk/reward profile less compelling than peers.