Berenberg upgrades Rio Tinto to 'buy'

The broker said that, following a visit to Rio's aluminium and titanium dioxide operations in Quebec, the future of this business looks "attractive", despite the market's generally sceptical view.

Investors have historically viewed the aluminium arm as a "problem asset" after the numerous impairments taken following he $38bn acquisition of Alcan in 2007. The business has struggled to live up to expectations since the financial crisis of 2008 and along with an economic slowdown in China in the 2010s.

"We think that these assets really do need to be seen to be understood, and the installed infrastructure that is present is very impressive – in our view, Rio’s is a good example of an operational system with an attractive economic moat," Berenberg said.

"While the aluminium business as a whole makes returns below the group average, it is broadly better than peers’. The replacement cost of the assets would very likely be c$50bn, we think – but frankly, these assets are strategic, difficult to replace and very difficult to build in the current day and age."

Meanwhile, the broker said that last week's Chinese stimulus announcements "underpin cost curve support of Rio's key commodities, such as iron ore".

"With a lower medium-term capital bill than BHP, and significantly less execution risk than Anglo American, we move Rio up to 'buy', and think that the shares will be the medium-term diversified winner versus peers."

Rio's shares were up 1.4% at 5,372p by 1142 BST, having gained 19% since settling at a year-to-date low of 4,516p on 8 September