Rio chief Albanese exits over failed deals
Head of successful iron ore unit takes over top job amid write-downs
Rio Tinto Group, the second-biggest mining company, will take about US$14 billion of write-downs for failed deals in aluminium and coal led by chief executive Tom Albanese, who will leave after more than 30 years.
The 55-year-old New Jersey native is leaving as a result of the US$38 billion cash takeover of Alcan in 2007, a deal that soured as China's emergence as the world's biggest aluminium producer left Western rivals with few markets to chase. Albanese's second-biggest deal, the A$3.9 billion (HK$31.92 billion) purchase of Mozambique coal producer Riversdale Mining in 2011, also deteriorated after coal prices fell.
The board picked Sam Walsh, the 63-year-old head of Rio's iron ore unit, to turn around the London-based company that had already cut the value of its Alcan purchase by US$8.9 billion last year. The Alcan takeover, which also cost Albanese and chief financial officer Guy Elliott their annual bonus, saw Rio's debt rise as much as 19-fold and forced the company to seek a US$19.5 billion deal with Aluminium Corporation of China that Rio later aborted.
"This was the straw that broke the camel's back," Paul Phillips, a fund manager with Perennial Growth Management who holds Rio shares, said. "I'm surprised Albanese has been there throughout all of this."
Rio dropped 2.6 per cent to £33.66 at 9.10am in London and the company's bonds led falls in European credit markets.
The miner's 2 per cent notes due in 2020 fell 0.8 per cent, pushing the yield up 13 basis points to 2.08 per cent, for the biggest drop in Bank of America Merrill Lynch's Euro Corporates Index. The cost of insuring Rio Tinto debt jumped in the credit-default swap market, with contracts climbing 8 basis points to 92.5, the highest since December 5.
Walsh would take over as chief executive from today, Rio said. Doug Ritchie, who led the purchase of Riversdale, will also step down as Rio will cut the value of the Mozambique coal assets by about US$3 billion.
"The management change is quite interesting because of Sam Walsh's age," Phillips said. "I expect him to be an interim for a couple of years so someone can develop up through the ranks."
Walsh, who heads the unit that generated 78 per cent of Rio's net income in 2011, will move to London from Perth in his new role. Under Walsh, iron ore is expanding to churn out 360 million tonnes by 2015 from its mines in Australia's Pilbara region.
"Sam Walsh is well regarded," said Ric Ronge, who helps manage about US$1.1 billion in stocks, including Rio and BHP Billiton, at Pengana Global Resources Fund.
