Rio Tinto’s $38 billion acquisition of Alcan, the Canadian aluminium producer, last year was a classic case of buying at the top of the market.

Normally ultra-conservative, Rio made the purchase only weeks before the mergers and acquisitions market shut up shop as the full effect of the credit crunch was felt.

Rio paid a high price for Alcan and it needed aluminium and other metal prices to stay high to give it the cashflows necessary to pay off $40 billion of debt taken on for the deal.

The slowing Chinese economy has made that increasingly difficult and Rio was forced to announce yesterday a series of measures designed to free up cash to pay its debt. The miner must repay or refinance $8.9 billion by October 2009 and a further $10 billion by October 2010, which in current financial markets is no easy task.

The downturn in commodity prices will hit all miners and most will be forced to mothball mines and shut down expansion projects, but Rio’s debt makes more drastic action necessary.

So was the Alcan acquisition a mistake? Certainly, with the benefit of hindsight, the price was too full and the debt too large.

However, Alcan has some of the best aluminium assets in the world because it has access to an abundance of hydroelectric power in Canada. Alcan is, therefore, one of the lowest-cost producers in the world and will remain so for decades to come.

Tom Albanese, the chief executive of Rio, said: “It’s a long-term investment for us and our long-term view has not changed that Alcan’s assets are high-quality and fundamentally attractive.”

Like many people who bought at the top of the market, Mr Albanese has been forced to forget about short-term gain and pin his hopes on the long-term benefits of his acquisition.

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