Why Rio Tinto could be one of the UK’s best value stocks!

I used the price slump last summer to increase Rio Tinto (LSE:RIO) shows my investment portfolio. The mining company has risen from that price level but is still one of the best UK bargain stocks to buy, in my opinion.

At £59.70 per share Rio Tinto trades on a forward price-to-earnings (P/E) ratio of 9.9 times. This is cozy below FTSE 100 average around 14 times.

Meanwhile, the commodity colossus yields a whopping 6.6% dividend for 2023. That’s more than double an average of 3.6% for FTSE index shares.

3 reasons to buy

There is a valid view that low company valuations indicate a difficult macroeconomic environment. Profits in cyclical companies like this are especially at risk during periods of high growth, such as now.

This may be true. But that didn’t stop me from buying Rio Tinto shares last summer.

This is because I invest in UK shares based on what return I can make over five to 10 years, maybe longer. And I believe Rio Tinto can deliver shareholder returns comfortably above the FTSE 100 average over that period.

Here are three reasons why I’m excited about the company today.

#1: Commodity supercycle

The demand for metals, energy and agricultural commodities is increasing in line with the global population. This is a trend that goes back to prehistory. But market experts think consumption could grow strongly over the next decade, generating strong profits for miners like Rio Tinto.

Let me provide some examples. Thanks to the green energy transition, the demand for metals like aluminum, copper and cobalt tipped into the balloon. Iron ore, meanwhile, will be needed in increasing quantities for rapid infrastructure upgrades and urbanization.

These are all commodities Rio Tinto produces from its global network of mines and smelters.

#2: Enter the market quickly

Buying a business with a large balance sheet has an extra advantage. Mega miners like this have the financial strength to invest heavily in exciting market opportunities as they arise.

Rio Tinto must have used its huge cash reserves. In 2021 enter the scandium market by building a scandium oxide plant in Quebec. Rare earth metals are used to build fuel cells and as alloys in the aerospace industry.

Rio Tinto’s acquisition of the Rincon Mining lithium project in Argentina last year was also quite exciting. Demand for the materials that make up batteries is expected to increase as sales of electric vehicles go through the roof.

#3: World-class assets

I also think Rio Tinto’s extensive network of industry-leading assets can help deliver market-beating returns.

This includes the Oyu Tolgoi copper mine in Mongolia where the company has a 66% stake. It is one of the largest red metal deposits in the world and the expansion here will increase the annual output of the complex to 500,000 tons per year.

To put this in perspective, Rio Tinto estimates this is enough to build 1,580 wind turbines or 16,400 electric cars per day.

Rio Tinto is one of the right’s favorite holdings. And at the current price I am considering building a position in the mining giant.