During the past 85 days AE Portfolio Aggressive Holding Rio Tinto Ltd (ASX: RIO, NYSE: RIO) has fired its CEO, booked a USD14 billion writedown on its assets and reported a USD2.99 billion annual loss for 2012.

The initial market reaction to the first two of these developments–which actually took place on Jan. 17, 2013–was positive, as Rio stock surged from a close of AUD64.60 on the Australian Securities Exchange (ASX) on the fateful day to a 2013 closing high of AUD72.07 on Feb. 14.

Feb. 14 was the day Rio reported results for 2012, and since then the stock has sunk as low as AUD54.60 on April 4–a 24.2 percent top-to-bottom slide–and now trades just north of AUD58. That’s 10.3 times estimated 2013 earnings.

Tom Albanese “stepped down” after seven years as CEO and 30 years overall with the company in January upon Rio’s announcement of a new round of asset impairments.

These include USD3 billion on coal assets in Mozambique it acquired less than two years ago for USD3.7 billion as well as another USD10 billion to USD11 billion hit to the valuation of aluminum assets bought at the market peak.

Rio has now written down USD28 billion of the USD38 billion it paid for aluminum producer Alcan in 2007.

But as the reaction from Jan. 17 through Feb. 14 indicated, the market appreciated the recognition of past strategic overreach as well as the accountability suffered by Mr. Albanese and another top executive. Rio replaced Mr. Albanese with Sam Walsh, who had been head of the company’s key iron ore division.

What’s weighed on the share price since the 2012 earnings announcement is a combination of factors, including fears of lower iron ore prices and a potential near-term surplus in copper. There’s also the lingering threat of a slowdown in China’s property sector.

Investors are also focused on the potential impact on dividend growth and other capital management initiatives such as share buybacks of high capital expenditures on new projects that may help only to drive commodity prices lower. Potential surpluses of iron ore, chiefly, could drag on earnings-per-share growth.

As murky as these potential downside catalysts may seem, it’s unclear too what will spur Rio’s share price higher from here. Clearly, efforts by policymakers in China and the US to sustain nascent signs of growth will help.

That means the Middle Kingdom’s new leadership explores some of the leeway low inflation reported this month allows it and continues to spend on infrastructure projects. And it means the US finds a way to limit the impact of the so-called sequester that threatens to strangle growth in the second half of 2013.

At the same time, however, these potential downside catalysts are already priced into Rio stock, and overlooked are several factors that support not only the current valuation but provide a basis for upside as well.

Rio has announced a series of project deferrals and cancellations that should help medium-term commodity prices, while management changes should lead to greater shareholder returns as new leadership cuts costs and exercises greater capital discipline. Global macroeconomic conditions that drive commodity demand have also improved.

And recent underperformance has made valuations look more attractive; once the rebound begins investors will pile in to Rio and other resource stocks to make up for being underweight the sector.

Even amid this torrent of less-than-favorable news management confirmed a final dividend of USD0.9167 per share for 2012, up from a final dividend of USD0.842 for 2011. The full-year dividend of USD1.67 per share was 19.5 percent higher than 2011.

Rio’s reported USD2.99 billion net loss for the year ended Dec. 31, 2012, was a 151 percent reversal from the USD5.826 billion net profit recorded for 2011. It resulted from the USD14.4 billion in writedowns on its aluminum and coal businesses.

Management reported underlying earnings of USD9.3 billion, which reflect record iron ore production and shipments and a second-half recovery in copper volumes. Lower average market prices in 2012 cut into underlying earnings by USD5.3 billion versus 2011.

During Rio’s presentation of results to analysts Mr. Walsh said the world’s second-largest iron ore miner would aggressively pursue asset sales and unveiled plans to cut costs by more than USD5 billion by the end of 2014.

Rio will reduce capital expenditures on approved and sustaining projects to about USD13 billion in 2013 and lower exploration and development spending by USD750 million compared to 2012.

Although the headline numbers appear grim, Rio actually beat analysts’ consensus forecast for underlying earnings by a healthy margin. And, noting that “China has achieved a soft landing,” Mr. Walsh said the company expects positive momentum in the fourth quarter of 2012 to be sustained into 2013. Rio expects Chinese GDP growth to once again exceed 8 percent in 2013.

Rio generated strong margins in copper, iron ore and minerals in 2012, but the aluminum and energy businesses suffered a weaker market as well as rising costs.

The Oyu Tolgoi copper-gold mine in Mongolia is being commissioned, with first commercial production scheduled by the end of June 2013. Rio Tinto is currently in a “clarification” process with the Mongolian government over the project, which will be built over two stages.

Rio controls 66 percent of the USD6.6 billion project, with the remainder controlled by the government. The company is “cautiously optimistic” that it will meet its schedule and have first output during the northern hemisphere summer.

Rio is positive on long-term prospects for the copper market as China and developed nations continue to demand more of the metal used in power cables and electrical wire and new supply faces mounting challenges. Copper is a key input for mobile devices such as iPads and iPhones.

Total mined copper production for 2012 was up 6 percent in 2012 compared to 2011 due to expected recovery in ore grades at Kennecott Utah Copper and the Escondida mine in Chile. Refined copper production improved at Kennecott Utah Copper following scheduled smelter maintenance during the second quarter.

Production of copper contained in concentrate at Kennecott increased through the second half of 2012 due to the expected recovery in ore grades, with fourth-quarter production 26 percent higher than the fourth quarter of 2011.

Mined copper production at Escondida in 2012 was 38 percent higher than 2011, and fourth-quarter production was 33 percent higher than the fourth quarter of 2011. Improvements were driven by an expected recovery in ore grades and increased ore delivered to the concentrator.

Rio reported record global iron ore shipments of 247 million metric tons (Mmt) for 2012 despite severe weather disruptions and a significant maintenance shut-down during the year.

Global iron ore production for the full year was 253 Mmt, of which Rio Tinto’s share was 199 Mmt. That represents a 4 percent increase over 2011 levels. Although Rio Tinto’s overall output profile is diversified, iron ore represents more than 70 percent of earnings.

Production from the Pilbara was 239 Mmt in 2012, of which Rio Tinto’s share was 191 Mmt, 4 percent higher than a year ago and good for another annual record.

Although the company has been hit by lower prices for its key output, management remains committed to expanding production of iron ore from the Pilbara. The expansion of Rio Tinto’s Pilbara infrastructure to support 290 Mmt per annum (Mmtpa) of production by the end of this year and 360 Mmtpa by the first half of 2015 remains on track.

Management had forecast 2012 output of 250 Mmt of iron ore. Attributable iron ore production in the fourth quarter was 51.95 Mmt, better than a consensus estimate from analysts of 50.6 Mmt.

Full-year 2012 sales of 233 Mmt were 3 percent higher than 2011, and fourth-quarter sales of 63 Mmt set a new fourth-quarter record, 2 percent higher than in 2011. Sales increased quarter over quarter throughout 2012, driving a company record for annual sales volumes despite significant market volatility.

Current capacity in the Pilbara has risen from 225 Mmtpa at the start of 2012 to 237 Mmtpa through de-bottlenecking and productivity improvement with “minimal capital spend.”

Production gains were realized even as iron ore prices plunged in 2012 to USD85 per metric ton. Iron ore prices rebounded by nearly 80 percent since a September 2012 near-term low to a 15-month high around USD150 during the first quarter of 2013, as signs of an economic recovery in China, the world’s biggest iron ore importer, continue to gather.

Early this year Rio Tinto’s Pilbara ports were closed for 87 hours due to Tropic Cyclone Narelle passing down the West Australian coastline. Despite the closure of the ports for shipping, the mine sites, and rail haulage from mine sites to port, continued to operate at full capacity throughout this period.

Molybdenum production was lower than the third quarter and corresponding periods in 2011, reflecting lower grades due to mine sequencing. Management expects grades to recover in early 2013.

Bauxite and alumina production in 2012 were 11 percent and 12 percent higher than 2011, driven by increased third-party demand for bauxite and expanded refining capacity at Yarwun. Aluminum production was 10 percent lower than in 2011, as ramp-up to normal capacity continued following resolution of the Alma labor dispute.

Thermal coal production for the full year was 16 percent higher than in 2011, reflecting increased plant capacity at Bengalla, the continued ramp-up at Clermont and the reversal of one-time disruptions in the fourth quarter of 2011.

Hard coking coal production was 9 percent lower than in 2011 due to the impact of planned maintenance and a major preparation plant shutdown as part of a mine expansion project.

In response to the persistently strong Australian dollar, declining coal prices and higher input costs Rio Tinto “is actively reducing controllable costs” in its coal business.

Titanium dioxide feedstock production for the full year increased 11 percent from 2011 following a successful furnace rebuild and an increase in volumes attributable to Rio Tinto from Richards Bay Minerals.

Rio’s efforts to control costs and shed non-core assets will make it a leaner operation.

Focusing on iron ore and copper positions the company to benefit from China’s continuing growth, and it sets the stock up to recover from a level that suggests investors are pricing in a much worse macro scenario than is realistic.

Rio, along with fellow AE Portfolio Aggressive Holding BHP Billiton Ltd (ASX: BHP, NYSE: BHP), also owns high-quality assets. Its scale guarantees healthy margins because it can control costs while realizing prices even lower than current levels. Large assets with favorable cost profiles mean Rio as well as BHP can maintain profitability throughout cycles.

Current forecasts call for China to grow by greater than 8 percent in both 2013 and 2014. The US is on course for 1.5 percent expansion this year and to exceed 2 percent next, as the sequester’s impact on GDP wanes. Even Europe is expected to return to positive growth in 2013 and 2014. This global growth will support demand for and prices of Rio’s key outputs.

Meanwhile, producers have announced a lot of project curtailments in recent months, and limits on output, along with continuing demand growth eating inventories, will eventually push commodity prices higher.

Higher capital costs for the mining sector generally, and in Australia in particular, act as a high barrier for entry to smaller miners. This will limit supply growth, which will in turn support prices.

As these factors coalesce, investors who have shunned resources stocks such as Rio will rotate back in. Improving investor sentiment on global macro conditions will also support a higher valuation.

As for Rio at a company level, Mr. Walsh will be a lot more disciplined in his approach to new projects. Capital discipline and cost control appear to be his guiding principles. At the same time, a less aggressive approach to new projects will hold back supply growth, which is positive for prices.

Rio is entering a period of CAPEX reduction rather than the rapid expansion of the early “China boom” phase. It can now devote the still-considerable and growing cash flow it will generate to debt reduction and other forms of capital management, such as dividend increases.

Rio Tinto is a buy under USD70 on the Australian Securities Exchange (ASX) using the symbol RIO.

Rio Tinto’s New York Stock Exchange (NYSE) listing is an American Depositary Receipt (ADR) that represents one share of the company’s London listing. Rio’s ADR–which also trades under the symbol RIO–is a buy under USD60.

Rio’s fiscal year runs from Jan. 1 to Dec. 31. The company reports full financial and operating results twice a year; it typically posts annual results during the second of February, with half-yearly numbers out in early August. Management also provides quarterly production and sales updates in April, July, October and January.

Rio Tinto pays dividends twice a year, an interim dividend and a final dividend. When the financial results for the half-year and full year are announced, the level of dividend to be paid to shareholders is also announced. The dividend is usually paid in April and September. The company pays dividends in US dollars.

Rio, because it trades on the NYSE and therefore complies with full US Securities and Exchange (SEC) reporting requirements, has a dividend reinvestment plan (DRIP) in which US investors are eligible to participate.

Dividends paid by Rio are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

Among Australian analysts currently covering Rio Tinto 15 rate the stock a “buy,” while two rate it a “hold” and one rates it a “sell.” The average 12-month price target from 15 of the 18 analysts is AUD77.34.