The Swiss broker sees the price of iron ore rising by 45% over the next three years due to better demand and supply fundamentals.
Allied to expected near-term rises in the price of other base metals (copper 8% aluminium 3%), Credit Suisse expects Rio’s underlying earnings to jump by 40-60% over the next three years.
The broker adds that it now prefers Rio Tinto to BHP PLC (LON:BLT), which has been downgraded, due to its view on iron and its greater importance to earnings.
Higher demand for steel and lower production from Brazilian group Vale are behind the iron upgrade, but Credit Suisse adds that the opportunity to reset ESG concerns and its reputation under a new CEO; and a net cash position also makes it a better bet currently than BHP.
The new target price for Rio is £63 in indicating 10% upside potential, while BHP‘s target price is below the market currently at £19.
Rio has been upgraded to ‘outperform’ from neutral while BHP goes the other way.
Shares in Rio eased 1% to £56.16, while BHP dropped 0.6% to £20.35.