The chief executive of Rio Tinto is stepping down following a $14-billion asset writedown, much of it related to the aluminum operations acquired by the global mining company when it bought Montreal-based Alcan several years ago.
Rio said that $10 billion to $11 billion of the writedown is related to the aluminum business, while it will record an additional $3 billion related to an African coal acquisition and $500 million in other parts of the company.
The aluminum charge raises the total Alcan writedown to about US$30 billion, amounting to nearly 80 per cent of the US$38.1 billion purchase price in 2007.
Tom Albanese, who had been with Rio for 30 years and CEO since 2007, and Doug Ritchie, who led the Rio’s Mozambique coal acquisition, have agreed to step aside immediately. Both will assist with the transition until July 16, Rio announced Thursday.
Albanese becomes the second major executive casualty from Rio’s disastrous purchase of Alcan, just months before a global recession drove down commodity prices.
Albanese and Paul Skinner, who stepped down as chairman three years ago, were instrumental in Rio’s acquisition of Alcan, which became the core of Rio’s worldwide aluminum business.
Tom Gidley-Kitchin, an analyst with Charles Stanley, said Albanese was clearly tagged with the Alcan acquisition soon after he became CEO, but it was the writedown of the Mozambique coal business that sealed his fate.
“He pretty much had to go. I think the Mozambique coal writedown was really just one writedown too far,” he said in interview from London.
Former Alcan president and CEO Dick Evans, who spearheaded the company’s sale and later headed the division within Rio Tinto, agrees.
“He was probably caught in a couple of deals that didn’t turn out that well and that’s clearly a contributor and I don’t think the aluminum was probably the largest driving force,” he said from San Francisco.
Sam Walsh, head of Rio’s iron ore division, becomes chief executive of the company, effective immediately.
“We are fortunate to have such a capable and highly experienced executive as Sam to take over and to ensure there will be a rapid and seamless transition,” said Rio chairman Jan du Plessis.
“He is ideally placed to cast a fresh eye over how we address the challenges and opportunities in the business, and derive greater value from it.”
Evans said Rio Tinto Alcan’s employees in Canada should welcome the appointment of Walsh, who headed Rio’s aluminum business before taking over iron ore and knows Canada’s strengths as a low-cost producer.
“I would think it would probably be a positive thing for the Montreal office to work with someone that knows the business that well.”
He also doesn’t believe Canadian employees should fear that Walsh will oversee many changes beyond what has already been announced to trim costs and sell non-core assets.
Gidley-Kitchin said Walsh’s main challenge will be to realize aggressive cost-cutting targets announced last year and to manage huge projects in Mongolia and Guinea.
“I don’t think he’s going to change the strategy at all. They are very actively trying to cut costs or improve efficiencies, improving some of the machinery at Alcan. I think basically his challenge is going to be execution.”
Albanese becomes the third big U.K.-based mining giant boss to leave in recent months, following departures at Anglo-American and Xstrata. Each of the newly appointed CEO’s are operations people focused on grinding out efficiencies and improving productivity instead of big strategic moves, Gidley-Kitchin said.
Their departures come as the world’s largest mining companies switch to a post-global financial crisis environment by becoming more risk averse amid volatile metal prices. They also face pressure from taxes imposed by host countries and shareholders seeking higher payouts.
During Albanese’s time, Rio diversified into new areas and commodities to build one of the world’s largest diversified mining businesses.
Albanese and Ritchie will receive no lump sum payments, no performance bonus for 2012 or 2013 and will forfeit their deferred bonus share entitlements, the company said. However, they will continue to receive their salaries during a transition period.
Rio Tinto PLC closed down 1.7 per cent in Thursday trading on the London Stock Exchange and was off 32 cents to US$54.50 in New York.
Walsh appears to have be rewarded for his work successfully building Rio’s iron ore position in Pilbara expansion in Australia and overseeing the division that generates about 80 per cent of Rio’s earnings. But the 63-year-old’s promotion surprised some observers given Rio’s tradition of CEOs retiring at 60 and the oversupply Walsh helped to guide.
While the departure of Albanese could have been expected, “I was just a little surprised they took an iron ore guy when that could be the next bomb,” said New York-based mining analyst Charles Bradford of Bradford Research/Soleil Securities.
Since acquiring Alcan in 2007, Rio Tinto has realized about US$12 billion from selling non-core assets including various parts of the aluminum business.
It also invested billions of dollars to expand and modernize its smelter in Kitimat, B.C., and build the first phase of its AP60 technology pilot plant in Quebec.
— With files from The Associated Press