In what looks to be a management case study for business schools sometime in the next few years, BHP Billiton is busy concentrating its activities in economically (and politically safe) countries while Rio Tinto pursues potentially fatter profits in riskier destinations.

In theory, both approaches could prove successful, but in reality one will do better than the other with BHP Billiton playing the role of a financial “tortoise” which should lead to slow but reliable profit growth, while Rio Tinto acts like a “hare”, seeking faster and bigger rewards.

Risks, of course, carry a price, as Rio Tinto revealed last week when it took a final hit on its disastrous adventure in Mozambique coal, writing off the last of the $3.9 billion invested in a project which was doomed from the start.

Countless autopsies on the body of Riversdale Mining which was the Mozambique-focused coal explorer acquired by Rio Tinto in 2011 have been conducted and Blower doesn’t have much to add except to say that when he visited the site a few years before the takeover he was told in very blunt terms that Rio Tinto’s preferred coal transport route, barges down the Zambezi River, would never be approved by the government of Mozambique.

That warning, from South African experts who had also looked at the coal project, was based on a view that the Zambezi River was either too low in the dry season or prone to flooding in the wet season and any dredging could alter the course of a river which routinely breaks its banks.

Undaunted, Rio Tinto management opted to hand over $3.9 billion of shareholder’s funds, only to discover the blindingly obvious which the locals had warned about, an unmoveable Mozambican government which said “no” to the Zambezi option just as world coal prices crashed. Ouch and ouch!

With Riversdale now sold to Indian investors, Rio Tinto faces two more challenges in its high-risk portfolio:

• Ongoing uncertainty over its relationship with the government of Mongolia at the Oyu Tolgoi copper mine, and
• Ongoing uncertainty of its relationship with the government of Guinea at the Simandou iron ore project.

Should either of those projects in two of the world’s riskier countries go pear-shaped, then so will the share price of Rio Tinto.

Right now, that’s not the case with analysts at the world’s leading investment banks rating Rio Tinto as a stock likely to outperform its arch rival, BHP Billiton.

What’s so interesting about the views of the bankers is that a few years ago, the roles of the world’s top two miners were reversed. BHP Billiton was the big risk taker with adventures in titanium minerals (Beenup), platinum (Hartley) deep copper (Magma) and iron ore processing (Boodarie).

Each of those investments, plus a few more, ended up as big financial write-offs, burning executive reputations in the process and setting BHP Billiton on a course of today’s more prudent investing, preferably in advanced western economies such as Canada, the US and Australia.

Interestingly, the reversal of roles which has seen Rio Tinto become the risk taker and BHP Billiton the careful investor does not appear to be influencing financial analysts – well, not yet, anyway.

The collective view of eight investment banks is that Rio Tinto is undervalued by around 18.5% with a 12-month share price target of $77.56, up around $12 on its latest sales – with Deutsche Bank leading the pack with a future price tip of $85.25 (or up 30%).

BHP Billiton, on the other hand is seen as heading for a more modest price rise of around 8%, or up $3 on its latest price of $38.35.

Despite the optimism shown by financial analysts about Rio Tinto’s outlook, Dryblower suspects he’s watching a re-run of the events which led ultimately to big changes at BHP Billiton after its high-risk growth strategy came unstuck.

It’s very different today with BHP Billiton focusing on oil and gas in the US, iron ore and coal in Australia, copper in the relative safety of Chile, and potentially potash in Canada.

Rio Tinto’s asset basket is heavily weighted to iron ore in Australia with a number of big projects in other safe economies before the risks of Mongolia and Guinea have to be considered.

That is not something that many investment bank analysts seem to be doing despite the obvious problems associated with Mongolia and Guinea, and the heavy reliance on Australian iron ore at a time the of weakening iron ore prices.

Business students with an eye on a future thesis will already be taking notes.