finally, showing some strength, page-4

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Rio Tinto plc (LON:RIO) shares are a Buy at RBS courtesy of the dynamics currently driving the iron ore market.

Royal Bank of Scotland group plc (LON:RBS) have this morning released a note on Rio Tinto, entitled Awesome Iron, in which analysts say that, "despite macroeconomic issues, iron ore prices have gained among signs of supply issues."

Of the diversified miners, RBS believe Rio Tinto is best positioned to benefit from this as 76% of its 1H underlying earnings were from iron ore.

A target share price on Rio Tinto has been set at 54.75. Our last quote on Rio Tinto is at 36.03.

The disconnect between Rio Tinto?s share price and the company?s underlying earnings presents a strong buying opportunity.

This is what RBS say:

"Rio Tinto derives more of its earnings from iron ore and coal (where prices have also held up well) than its major FTSE 100 diversified mining peers.

"The shares trade on a PE of only 5.8x for 2011F and 5.6x for 2012F, and based on our target price, there is 60% potential share price upside over the next 12 months.

"We maintain our Buy rating on Rio Tinto and it is our top pick in our coverage universe. There may be further near-term volatility as the market absorbs eurozone and US debt/credit news flow, but we are confident that the focus will return to the longer-term supply-demand fundamentals, and a focus on demand growth in leading developing markets (China and India in particular) and the problems that the mining industry faces in meeting that demand."