Quite frankly the impairments announced by Rio last week of its aluminium and Mozambique coal assets have led me to reconsider whether Rio should retain its place in the growth portfolio. At the outset, let me state that there is no problem with owning major resource-based companies that focus upon returns on capital investment and therefore shareholder returns. While they are cyclical businesses, this can be offset by prudent management of capital. Indeed it is the managerial ability of a resource company to invest against the cycle, rather than with a cycle, that will ultimately hold it in good stead.
So to consider the performance of Rio, I have decided to line it directly up against BHP Billiton to determine the strength of Rio’s management performance against BHP’s over the last 10 years.