Shares of Rio Tinto (NYSE:RIO) fell 2% in early U.S. trading Tuesday after Jefferies downgraded the mining giant from “Buy” to “Hold,” citing a more cautious outlook in light of evolving challenges and a shift in its risk-reward balance.
The investment firm revised down its price targets across Rio Tinto’s global listings, cutting Rio Plc’s target from 5,700p to 4,600p and Rio Ltd’s from A$147 to A$115.
Jefferies analysts, led by Christopher LaFemina, emphasized that while they don’t view Rio—or its peer BHP—as fundamentally flawed, they believe the upside potential has narrowed after a series of recent developments.
Among the top concerns is a leadership transition. With CEO Jakob Stausholm set to step down later this year, uncertainty looms over Rio’s strategic direction. Internal candidates like Simon Trott, Jérôme Pécresse, and Bold Baatar are seen as bringing varied strategic priorities, particularly around mergers and acquisitions.
“Until Rio names a new CEO, the company’s long-term direction remains unclear,” the analysts stated.
The firm also flagged growing apprehension about Rio’s investments in lithium. Although these projects may be countercyclical, Jefferies warned that ballooning capital requirements and the risk of underwhelming returns could become headwinds if market demand doesn’t align with the company’s projections. In the near term, increased capital spending may pressure free cash flow without an immediate earnings lift.
Iron ore, which makes up the majority of Rio Tinto’s value, remains a point of concern as well. Jefferies expects prices to soften in the coming quarters, influenced by U.S.-China trade friction, Chinese steel production cuts, and seasonal slowdowns. The analysts are forecasting a drop to $90 per ton in Q3, down from the current $95, and maintain a longer-term price range of $80–$90.
“This presents a challenge for Rio, given how central iron ore is to its valuation,” the team added.
Jefferies also highlighted geopolitical risks, including U.S. tariffs on Canadian aluminum—where Rio has key operations—which could eat into margins despite localized pricing benefits. Meanwhile, the brokerage is monitoring political shifts in Mongolia that may affect the Oyu Tolgoi copper-gold mine, though its baseline scenario assumes continued operations without major setbacks.
Given the evolving landscape, Jefferies now prefers Glencore (USOTC:GLNCY), Anglo American (USOTC:NGLOY), and Vale SA (NYSE:VALE) over Rio and BHP, citing stronger capital strategies and lower geopolitical exposure.