Rio Tinto CEO pays price of calamitous acquisitions

Thu Jan 17, 2013 6:58pm EST
 
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By Clara Ferreira-Marques

LONDON (Reuters) - Rio Tinto sacked chief executive Tom Albanese on Thursday and revealed a $14 billion writedown almost entirely on the value of his two most significant acquisitions, the Alcan aluminium group and Mozambican coal.

An engineer who became the miner's first American boss, Albanese will be replaced by Australian Sam Walsh who heads Rio's operations in iron ore, where it is the world's second largest producer.

Doug Ritchie, the heavyweight former energy boss who led the acquisition of Mozambique-focused miner Riversdale, was also shown the door after almost three decades with the company.

New Jersey-born, Alaska-trained Albanese had until now survived the consequences of his disastrous $38 billion acquisition of Alcan in 2007, a bruising top-of-the-market deal when Rio was under pressure from rivals to bulk up or be bought.

The deal, just two months after Albanese took the reins, turned bad as markets crumbled and aluminium prices slumped, battering Rio's balance sheet, nearly forcing it into the arms of Chinese state-owned Chinalco and triggering a $15 billion rights issue. Rio has since suffered years of losses in aluminium, with Alcan adding to problems at its original business, and has taken some $29 billion in impairments.

Walsh was already in charge of the division that accounts for nearly 80 percent of profits and his appointment hints at a back-to-basics strategy as shareholders demand better cash controls throughout the mining sector.

Walsh was welcomed by investors and analysts on Thursday as a safe pair of hands, but many also questioned whether a 63-year-old veteran would be a long-term solution, raising concerns over management at a group that also announced the departure of its chief financial officer last July.

"It's another black mark in terms of (Albanese's) M&A record and I suppose, given the magnitude of this writedown ... I'm not surprised that he's stepping down with this, nor am I surprised that Doug Ritchie is," analyst Jeff Largey at Macquarie said.   Continued...

 
Global miner Rio Tinto Chief Executive Tom Albanese is pictured during a news conference in Sydney November 29, 2012. REUTERS/Tim Wimborne (AUSTRALIA - Tags: BUSINESS COMMODITIES ENVIRONMENT)