The resources sector is far and away one of the best inflation hedges, since these companies are among the first to benefit from increasing commodity prices. From late 2007 and into early 2008 before the market crash, it was clear to see the impact of soaring commodity prices on natural resources stocks.

But even as the global economy has slowly but steadily recovered, resource stocks have yet to return to their pre-recession glory in terms of share price. Rio Tinto (NYSE: RIO) has been a particular laggard in the sector, continuing to pay the price for the misadventures of its one-time CEO, Tom Albanese.

A serial acquirer with a grand vision to create a global mining behemoth of Rio Tonto, Albanese fell into the trap of buying growth. In 2007 he purchased Alcan, a leading producer of bauxite and aluminum manufacturer, for what was even then the eye-popping sum of $38 billion. He followed that up with the ill-timed acquisition of Mozambican coal miner Riversdale for $4.2 billion in 2011.

Those are just two of more than a dozen purchases made by Albanese during his tenure at Rio, which ultimately led to a $14 billion write-off last year.

But since taking over as CEO following the ouster of Albanese a bit more than a year ago, Sam Walsh has made huge strides in turning Rio around.

By selling off the miner’s higher cost projects, Walsh has raised more than $3 billion in cash and cut operating costs by $2 billion last year. He has also paid down $1.1 billion of the company’s debt, dropping it to $18.1 billion, and plans to generate a further $3 billion in cost savings in 2014.

Largely thanks to Walsh’s efforts, the company swung to a net profit of $3.7 billion last year, following a loss of $3 billion in 2012, even while absorbing a $2.9 billion loss due to exchange rate movements on the company’s debt. Earnings beat the average forecast by more than $400 million and came in a year when prices for iron ore, copper and coal—key Rio products—were lower.

The boost in profits helped fund a 15 percent increase in Rio’s dividend, taking it up to $1.92 and well ahead of analyst forecasts. Based on its current dividend policy, the miner is now paying out about 35 percent of its underlying earnings.

Despite its better-than-expected earnings performance and dividend bump, Rio Tinto’s share price is still flat on a trailing year basis largely due to concerns about Chinese economic growth. The country’s economy grew by 7.7 percent in the fourth quarter, slightly below analyst expectations, and most agree that growth is likely to decelerate further this year.

However, despite that slowing growth and negative prognostications, Rio’s iron ore production grew by 3 percent in its fourth quarter to a record 66.5 million tons. For the full-year its iron ore output hit 266 million tons, while its shipments to Chinese steelmakers rose by 5 percent over the course of 2013.

And despite the more pessimistic forecasts of Chinese economic growth, Rio Tinto expects to continue growing its Australian iron ore production—most of which is bound for China—to 330 million tons by the end of next year. That comes even as the company reduces its capital expenditure by as much as 20 percent over the same period.

The simple fact is that while the nature of China’s economy is changing, broader secular trends such as urbanization remain intact, driving the country’s demand for iron ore. China is also continuing to invest heavily in railroad development, spending $100 billion to lay more than 4,000 miles of new track this year alone, providing another impetus for growing steel demand.

That’s prompted a consensus analyst outlook for better than 15 percent earnings growth in 2014 and average growth of 6.5 percent over the next five years.

Potential challenges still lay ahead for Rio Tinto—lower capital expenditures could hurt production growth down the road and commodity prices are likely to remain volatile. Nonetheless, the company has swung from one of the weakest miners to one of the strongest.

A strong turnaround play, I’m adding Rio Tinto to our Thrive Portfolio as a buy up to 67.