What Traders of Commodity Stocks Need to Know About Tio Tinto’s Writedown
The breaking report from Rio Tinto and their unexpected $14 billion write down tells two stories and both are important to traders of commodity stocks -- and I will endeavor to tell you both.
First, there is of course the bad - no, stellarly awful - decisions made by the outgoing CEO, Tom Albanese for the Anglo-Australian mining giant. The first that is coming to light today is the horrible overpayment made for Alcan in 2007; a $38 billion acquisition that has been left unrewarded by lower and lower aluminum prices and awful return on capital. Now, I can see getting stuck in a very bad aluminum trade - often I have wondered over the past 5 years myself about tin and aluminum prices, the one metal that refused to give even the merest spike in prices to trade off of. "Can it really go lower?", I continued to ask myself, once getting stuck in a buy of Alcoa in the hopes that I had found a bottom, only to see that - yes, indeed - aluminum *could* in fact go lower still. In thinking that Aluminum would 'have it's day', Albanese wasn't alone -- one could almost forgive that.
But the Mozambique screw-up is totally unfathomable: How can you spend $4 billion for a company (Riverside mining) with assets for coal deep in the interior of a backwards, third-world nation run by thugs and not have already secured the rights from that nation's government to transport…