Tue, Dec 05, 2017 page10

• Rio Tinto Group picks Thompson for chairman as investors seek discipline

  • Bloomberg, MELBOURNE
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  Rio Tinto Group named industry veteran Simon Thompson as chairman after shareholders rejected a plan to install a renowned dealmaker — reinforcing an industry-wide investor drive for higher returns and caution over project spending.

  Thompson, 58, a Rio director since 2014 and previously an executive director at Anglo American PLC, is to succeed Jan du Plessis from March 5, London-based Rio said in a statement yesterday.

  Du Plessis, who has held the post since 2009, is stepping down after taking up the same position at BT Group PLC.

  The mining sector is under pressure from big investors and hedge funds to keep a tight grip on capital spending and boost shareholder returns as earnings rise, following a failed mergers and acquisitions (M&As) spree sparked by the commodity boom around the turn of the decade.

  PROMISED RETURNS

  Thompson said he would ensure that Rio continues to deliver superior returns for shareholders by maintaining its capital discipline and value-over-volume approach.

  Investors are likely to back Thompson’s plan to continue a cautious strategy, with many still wary of the sector’s legacy of botched M&As, including by Rio, Morgans Financial Ltd analyst Adrian Prendergast said by telephone.

  “A seemingly conservative choice is certainly going to be very positively received in our view,” he said.

  Rio yesterday advanced 1.2 percent to A$72.05 in Sydney trading, extending gains this year to 20 percent.

  “We have still got a growth agenda there — but the main thing is staying focused on generation of cash and on disciplined allocation of capital,” chief financial officer Chris Lynch said in a telephone interview.

  Rio boosted investor returns this year with higher dividend payouts and share buybacks, while also carrying out an expansion of Mongolia’s Oyu Tolgoi copper mine and development of the Amrun bauxite project in Australia, he said.

  The company, which began the hunt for a new chairman last year, had to restart its search after an investor backlash against Mick Davis, the former Xstrata PLC chief. The proposal was halted after a letter dated Nov. 21 and sent from shareholders with about 20 percent of Rio’s UK shares demanded a candidate who would show discipline in allocating capital.

  At BHP Billiton Ltd — Rio’s biggest competitor — Ken MacKenzie was installed in September as chairman amid an activist-investor campaign for improved performance. He has flagged plans to keep a tight focus on project spending and is carrying out a review of the producer’s process to allocate capital.

  EXPERIENCE

  Thompson is chairman of UK buyout firm 3i Group PLC and has also served on the boards of other resources companies such as Newmont Mining Corp, Tullow Oil PLC and United Co Rusal.

  He will need to handle the continuing fallout from Rio’s past failed deals, including fraud charges filed by US authorities against former executives over allegations tied to coal assets acquired in Mozambique in 2011.

  China, which accounts for about 43 percent of Rio’s revenue, could experience a “slowdown over the next six months, with a weakening in construction, infrastructure and automotive demand growth during that period,” Rio warned in a separate presentation yesterday to an investor forum.

  The producer maintains an optimistic outlook regarding the top commodities consumer in the medium to long term.
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