Rio Tinto's Ego Play - TheStreet

Rio Tinto

(RTP)

thwarted

Alcoa's

(AA) - Get Report

plans to wrap up

Alcan

(AL) - Get Report

, yet lower aluminum prices may ultimately foil the union.

"Rio way overpaid for Alcan," Tom Winmill, portfolio manager for the $200 million

(MIDSX) - Get Report

Midas fund, says of the $38 billion deal. "The new CEO at Rio says it's all about China, but China will be a net exporter of aluminum in a few years. This is more of an ego play for Tom Albanese, who is trying to make his mark."

According to Morningstar, Winmill's fund is up more than 24% year-to-date and has an average return of more than 40% annually over the past three years.

Winmill is negative on aluminum prices due to increased supply, expecting the metal to drop to $1.10 a pound from $1.25. He maintains a bearish opinion even as merger-and-acquisition activity has elevated stock valuations among the dwindling number of producers.

"This is a short-term negative for Alcoa, which has always been a struggling producer," says Winmill. "The question is whether they will be taken out at this price, which I view as a bit high." Alcoa's stock, which has been buoyed by rampant rumors about a buyout from Melbourne-based mining giant

BHP Billiton

(BHP) - Get Report

, currently trades at 14.5 times 2008 estimates.

Winmill's cheaper and better-run alternative is

Century Aluminum

(CENX) - Get Report

, which sports a forward multiple of just under 11.

Want more? Check out TheStreet.com TV video. Gregg Greenberg and Tom Winmill discuss why Winmill believes Rio Tinto overpaid for Alcan.

He considers BHP Billiton the "bluest of the blue chips in the mining sector" and a "must own," despite its being slightly pricey, with a forward PE of 12. "They will get even stronger when they increase their uranium production over the next five years."

As for the future of gold prices, the mutual fund manager with the Midas touch says the yellow metal will finish the year north of $700 an ounce as investment demand for the

streetTracks Gold Shares

(GLD) - Get Report

exchange-traded fund increases and the value of the dollar decreases vs. that of the euro.

"Gold is following the euro, and ETF buying ... went from 14.9 million ounces to 15.6 million in a week this summer," says Winmill. "And if you get an interest rate cut, then it's off to the races."

Winmill says his top gold pick is Toronto-based

Agnico-Eagle Mines

(AEM) - Get Report

which he says is a high quality producer with great management.

"They have great growth potential to go from producing 240,000 ounces in 2007 to over 1.3 million in 2010," says Winmill. "They even pay a dividend, and you can't argue with coins in your pocket."

Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.