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Investing.com -- Shares in Rio Tinto (NYSE:RIO) fell 2% in U.S. premarket trading Tuesday after Jefferies lowered its rating on the mining giant to Hold from Buy, citing a more balanced risk/reward profile amid a series of emerging headwinds.

The brokerage cut its price targets across listings, with the Rio Plc target lowered from 5,700p to 4,600p and the Rio Ltd target from A$147 to A$115.

“We do not believe that Rio (or BHP) is ‘broken’. We just consider the risk/reward tradeoff to be more balanced following recent developments,” analysts led by Christopher LaFemina.

One of the key concerns is the uncertainty surrounding the company’s strategic direction following the announcement that CEO Jakob Stausholm will step down later this year.

The analysts noted that potential successors—including Simon Trott, Jérôme Pécresse, and Bold Baatar—bring different implications for future strategy, including M&A potential.

“Until the new CEO is announced, the strategic direction of Rio will be a risk,” the analysts noted.

Jefferies also flags growing concerns around Rio’s lithium investments. While seen as countercyclical, these projects carry risks of “rising capital intensity and potentially low returns” if demand fails to meet Rio’s expectations.

As spending increases, near-term free cash flow (FCF) could be negatively affected without a corresponding boost in earnings, the analysts said.

The team is also cautious on iron ore, which accounts for over 70% of Rio’s net present value. The analysts expect the price to ease in the near term, citing trade tensions between the U.S. and China, structural steel capacity cuts in China, and seasonal weakness.

“We model $90/t in 3Q vs current spot of $95/t,” they wrote, with a long-term forecast in the $80–90/t range.

“A lower iron ore price is negative for Rio,” the analysts added.

As for the political landscape, Jefferies points out that U.S. tariffs on Canadian aluminum, a key production region for Rio, could reduce profitability despite potential gains in regional pricing.

Meanwhile, political developments in Mongolia may complicate operations at the Oyu Tolgoi project, though Jefferies’ base case assumes no major disruption.

In the mining sector, Jefferies now favors Glencore (OTC:GLNCY), Anglo American (JO:AGLJ), and Vale SA ADR (NYSE:VALE) over Rio Tinto and BHP Group Ltd (ASX:BHP), citing better positioning with respect to capital allocation and geopolitical exposure.

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