Rio Tinto has turned around, but the Alcan deal still casts its shadow

Two years ago Rio Tinto was on its knees and Tom Albanese was a chief executive under pressure. Borrowings stood at a colossal $40bn, a legacy of the horrible acquisition of aluminium maker Alcan at the top of the market in 2007; BHP Billiton had dropped its bid approach to Rio, and commodity prices were plunging. In desperation, Rio held out a begging bowl to China, proposing a $20bn (£12bn) injection from the state-owned Chinalco. Chairman-designate Jim Leng was unimpressed and quit. The shareholders eventually insisted on recapitalising Rio themselves via a $15bn rights issue. And now? Rio is rich. Cash is flowing from operations at the rate of $64m a day – that's $1m every 23 minutes. Debt has fallen from $18.9bn to $4.3bn in a year and the company can commit to spending $5bn on a share buyback. Albanese has survived in style. Alcan is still misfiring, but the surge in the price of iron ore (about two-thirds of Rio's business) masks the embarrassment. The iron-ore spot price (which dictates the next quarter's contracted price) is $180 a tonne, up from $65 two years ago. It costs Rio about $20 a tonne to dig up iron ore in western Australia and about $10 a tonne to ship it to China, so it's easy to see why cash is plentiful. The big question is how the miners will spend their riches. Albanese – bruised by his brush with balance sheet disaster – sings a conservative tune these days. He is mindful of the "risks to the macro economy". Yes, a slowdown in construction in China could send iron prices rapidly southwards. That's a fact of life in a business ruled by the economics of marginal cost production. But Albanese is also signalling that his lust for big deals is satisfied. Rio's current $3.9bn offer for Riversdale, a Mozambique coal miner, represents the rough limit of his ambitions. That, at least, seems to be the message conveyed by the share buyback. Admittedly, a major adventure in copper in Mongolia is hardly low risk. But the days of trying to match BHP for deals are over. Rio shareholders will be thankful. They are left to wonder, though, how much higher the share price would be without the Alcan deal – 25%, at least. If only.