Rio Tinto Group (ASX:RIO) has less downside risk in iron ore prices as the cost curve steepens on rising freight rates, according to a Wednesday note by RBC Capital Markets.

According to the note, merger and acquisition risks look more balanced for Rio, with an expected $5 billion in cash release from infrastructure and borates to be disclosed in the fourth quarter, offsetting the smaller chance of expensive copper acquisitions.

Rio Tinto has lagged its diversified peers, excluding Vale, with a 19% gain year to date versus 44% for BHP and Glencore, the note added.

From a valuation perspective, Rio Tinto does not look as stretched as BHP, but Glencore could weigh on both, depending on the success of its Australian listing, RBC said.

RBC Capital Markets upgraded its rating on Rio to sector perform from underperform and reduced its price target to AU$152 from AU$154.