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What Traders of Commodity Stocks Need to Know About Rio Tinto’s Writedown

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…




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