Rio Tinto's new man at top wins praise from investors
£8.7bn writedowns blow but hopes are voiced of a 'hard-nosed' era for miner
Rio Tinto's shareholders have welcomed the promotion of Sam Walsh, the miner's iron ore chief executive, to the top job following the sudden resignation today of Tom Albanese after five years at the helm and two decades with the company.
But shareholders were disappointed by the $14bn (£9bn) worth of writedowns Rio announced alongside Mr Albanese's resignation, as the FTSE 100 miner took another major charge against its beleaguered Alcan aluminium business as well as a hit on its coal operation in Mozambique.
"We knew there would be a further writedown but this is certainly larger than we had expected. Tom Albanese definitely had to go because he is closely associated with the Alcan deal and has taken full responsibility for the Mozambican coal business," Charles Stanley's analyst Tom Gidley-Kitchin said.
Today's writedowns came less than a year after Rio cut by $8.9bn the value of Alcan, the Canadian aluminium giant Mr Albanese bought at the top of the market in 2007, just two months into his five-year reign as chief executive. It has been hammered by rising costs and falling prices.
Analysts welcomed the promotion of Mr Walsh, an avid collector of antique milk jugs who joined Rio Tinto in 1991 after 20 years in the car industry at General Motors and Nissan Australia. Now 63, Mr Walsh has spent the last eight years of his 21-year stint at Rio running its key iron ore unit.
"It makes a lot of sense that Sam Walsh should run Rio after running the most successful part of the business – iron ore accounted for about three-quarters of the group's operating profit last year," Mr Gidley-Kitchin said.
Kate Craig, an analyst at Liberum Capital, added: "Rio appears to be taking the front foot on the writedowns, launching management changes and cost-cutting before the market has asked for it. Sam Walsh is the logical replacement for Albanese and has a strong operational heritage."
Shareholders are hoping that the top-level management change will herald a new era at Rio, in which it keeps a much tighter grip on both operating and developing costs and gives greater consideration to the prospect of handing cash back to investors rather than automatically investing it.
"Given the mixed track record the group has on capital allocation, we expect the writedowns and management change to herald a welcome period of greater discipline, both in terms of M&A [mergers and acquisitions] and capital expenditure," Jonathan Jackson at Killik & Co said.
Mr Gidley-Kitchin added: "The changes are consistent with the picture that is emerging at Rio of a company that is taking a more hard-nosed approach to running a business and capital expenditure."
He pointed to Rio's announcement in November that it planned to cut spending by $7bn over the next two years as the first significant example of its emerging tougher line. Analysts said that achieving those "aggressive" cost cuts will present Mr Walsh with one of his biggest challenges.
As part of his drive to contain costs, he will have to keep a tight grip on three key projects that are in development. These include Riversdale, the fledgling Mozambique-focused coal business it bought in 2011, which Rio announced the $3bn writedown against as the cost of developing supporting infrastructure spiralled and estimates of its recoverable reserves had to be written down.
The other two – the Simandou iron ore project in Guinea and the Oyu Tolgoi copper and gold mine in Mongolia – have already shown the potential to go significantly over budget, analysts said. Mr Albanese, who received a $1.6m bonus in 2010, waived his bonus for 2011 as retribution for the first big writedown of Alcan. Today, he forwent his bonus for 2012, along with £12.3m-worth of outstanding long-term incentive plans.
Mr Walsh will receive total pay, including bonuses, of up to A$7.8bn (£5.1bn). Shares in Rio initially fell 5 per cent but ended down 0.5 per cent at 3,439.5p as the management change balanced out the writedown.
Liam Neeson's Downton dreams
Thriller is set in the secret world of British espionage
Bomber jacket worn by Mary Berry sells out within an hour
- 1 Scottish independence results live: Reunited kingdom - Scotland gives a clear 'No' in historic referendum
- 2 iOS 8 is full of shiny new features - but it's terrible news for app developers
- 3 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
- 4 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 5 Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Scottish independence results live: Reunited kingdom - Scotland gives a clear 'No' in historic referendum
Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Scottish independence: YouGov final prediction puts No campaign 8 points ahead - but Yes team remains optimistic
Scottish independence: Tory revolt against 'devo max' grows as Rail Minister Claire Perry joins
Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...
Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...