Rio Tinto writes down US$14bn, CEO quits

FALLING ON HIS SWORD::Chief executive Tom Albanese stepped down after the mining giant took a hit on its Mozambique coal assets and its aluminum business


Fri, Jan 18, 2013 - Page 15

Anglo-Australian mining giant Rio Tinto Group yesterday announced a US$14 billion write-down on its Mozambique coal assets and ailing aluminum business, prompting its chief executive to resign.

Rio said it expected non-cash impairments of about US$3 billion relating to its Mozambique coal project acquired in 2011 and a further US$10 billion to US$11 billion related to its aluminum assets, in its annual results due on Feb. 14.

“The Rio Tinto board fully recognizes that a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable,” chairman Jan du Plessis said. “We are also deeply disappointed to have to take a further substantial write-down in our aluminum businesses, albeit in an industry that continues to experience significant adverse changes globally.”

Du Plessis said chief executive Tom Albanese had stepped down effective immediately “by mutual agreement with the Rio Tinto board” and would be succeeded in the top job by Rio Tinto’s iron ore chief Sam Walsh.

Doug Ritchie, who led the acquisition of the Mozambique assets which were previously known as Riversdale Mining Ltd, had also stood down, he said.

Neither would get a lump sum payout or outstanding bonuses. They would formally leave the company on July 16 to ensure a smooth transition.

“While I leave the business in good shape in many respects, I fully recognize that accountability for all aspects of the business rests with the CEO,” Albanese said.

The announcement comes a day after the mining giant unveiled record production last year and beefed up expansion plans for its flagship Australian iron ore operations.

The chairman said Rio’s underlying business and balance sheet “remain in good health and we are taking decisive action to improve our competitive position further with an aggressive cost reduction plan.”

Rio’s unpopular US$38 billion acquisition of Canadian firm Alcan Inc in 2007 has cost it dearly, with lagging profits from the metal eating into its bottom line and seeing full-year earnings slump 59 percent last year to US$5.8 billion.

An impairment charge of US$8.9 billion from the aluminum business saw Albanese forgo his bonus last year.

Rio said conditions in the aluminum market had worsened further last year, with a rally in some currencies compounding high raw material and energy costs.

In Mozambique, developing infrastructure to support its new coal assets was proving more challenging than anticipated, the company said.

“These infrastructure constraints, combined with a downward revision to estimates of recoverable coking coal volumes on the tenements, have led to a reassessment of the overall scale and ramp-up schedule of [the project], and consequently to the impairment announced today,” the company said.

Du Plessis thanked Albanese and Ritchie for their lengthy service to the company — more than 30 years in the outgoing chief executive’s case — and noted Ritchie’s “invaluable work in developing our relationships in China.”

A slowdown in China, and debt woes in Europe and the US have weighed on mining companies in the past 12 months, with projects delayed or shelved as commodity prices have plunged on a drop in demand.