Under new CEO Sam Walsh, mining conglomerate Rio Tinto (NYSE: RIO) is righting itself, and the positive results should become increasingly evident in the coming year.

With the end of the China-driven commodities boom, metals prices have fallen. As a result, RIO posted $14 billion in write-offs in 2012, having overpaid to buy Alcan in 2007 and coal operations in Mozambique in 2011. These massive write-offs caused RIO to post its first-ever loss—nearly $3 billion in 2012.

Due to the 2012 loss and a weak outlook for commodity prices, RIO stock is down 20 percent from its 52- week high. The shares are priced at around 10 times the 2013 earnings estimate (vs. 14 times for the typical mining stock) and sport a 3.5 percent dividend yield.

RIO has been overly punished by the market, we think. For the reasons below, we think RIO is a good way to play the eventual recovery in commodity prices. And it’s also a good hedge against inflation.

Asian steel-driven. Britain-based RIO mines most major metals (aluminum, copper, coal, diamonds, gold, etc.) and about 70 percent of its mines are in the economically stable countries of Australia and Canada.

By far, RIO’s biggest product is iron ore, a key component in steelmaking. Iron ore is bringing in close to 80 percent of RIO’s profits (and half of revenue). And Asia is driving sales. Consider that 63 percent of RIO’s revenue comes from Asia (32 percent from China, 16 percent from Japan and 15 percent from other Asian countries).

While China’s economic growth has slowed from the torrid 10 percent annual pace, the economy is still expanding at a fast clip. In late August, China reported second-quarter GDP rose 7.6 percent. And the rest of Asia continues to plow ahead. RIO is uniquely positioned to benefit from Asia’s continued (albeit slower) growth.

New CEO Sam Walsh, who took over this past January, headed RIO’s iron ore operations for eight years. Under him, RIO is once again focusing on iron ore and cutting costs to improve profitability.

Low-cost producer. RIO has pricing power in iron ore, because it’s part of a three-company oligopoly that supplies the metal worldwide. And RIO has relatively low iron production costs, recently hovering around $50 per ton.

With iron ore prices forecast to be around $90/ton, down a third from the peak, RIO is aiming to improve profitability by: (1) cutting some $5 billion out of its cost structure by the end of 2014; (2) selling marginally profitable operations; and (3) increasing production. These efforts are forecast to eventually lower RIO’s iron production costs to $35/ton from the current $50/ton.

Already, RIO’s profitability is starting to show improvement. In the first half of 2013, the operating profit margin rose to 37 percent, up 4 percentage points.

Financially solid. RIO, which has an “A” credit rating, generated roughly $8 billion in cash flow the first half of 2013, and it has some $8 billion in cash on its balance sheet.

So RIO is generating more than enough cash to increase the dividend and repurchase shares, both of which increase shareholder value. By the end of 2014, the company has been authorized to buy back up to 10 percent of its shares.

As China’s economy continues to grow 6 to 8 percent annually, and mineral prices eventually recover, diversified miner RIO is poised for serious growth. And given its 3.5 percent dividend yield, investors are being paid handsomely to wait.