After the shock, ore brings relief to Rio

With the Alcan and Riversdale debacles behind it, signs of a more focused approach are promising for the miner.

With the Alcan and Riversdale debacles behind it, signs of a more focused approach are promising for the miner.

Being the chief executive of one of the largest and most eminent global miners should be a dream job, especially in a boom.

For Rio Tinto's former boss Tom Albanese, it has been a nightmare - of his own making.

His departure and the appointment of former iron ore boss Sam Walsh as his replacement points to two important conclusions.

The first is that Rio's strategy of being a global, diversified mining house is dead: Rio is now a plain-vanilla iron ore play.

The second is that this may be the trigger for far better times.

Albanese finally wore the blame for perhaps the worst takeover in Australian corporate history - the $US38-billion acquisition of Alcan, $US30 billion of which has now been written off.

But the real kicker was $US3 billion written off Rio's relatively recent buy of Riversdale Mining.

The elevation of company veteran Walsh is a tacit admission of defeat.

Coal expansions will probably be canned and Rio is already looking to sell its irreparable aluminium assets.

Iron ore prices have surged this year but we expect them to remain between $70 and $100 a tonne over time.

As the industry's lowest-cost producer, Rio will still generate splendid rates of return and lower prices may prevent competitors from expanding, further strengthening the dominance of the big three producers: Rio, BHP Billiton and Vale. Despite the writeoffs, Rio remains in good health.

Were it not for the Chinese demand for iron ore during the past decade, the company might not have survived.

Then again, without the iron ore profits, it probably couldn't have made the Alcan purchase.

For long-term investors, these are promising signs.

The board has acted at last - though it's disgraceful that it signed off on the Alcan deal in the first place - and conservative, careful language has replaced the testosterone-infused announcements of old.

The former Rio Tinto, the cautious contrarian of the industry, is being rebuilt.

There are still improvements to make: costs must be cut, technology initiatives need to be implemented and a coda for the aluminium drama scripted. But new management is capable of this and more.

This article contains general investment advice only (under AFSL 282288). Nathan Bell is the research director at Intelligent Investor,

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