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Rio Tinto CEO ousted

January 18, 2013

Posted by Liz Hester

After a $14 billion write-down, Rio Tinto Chief Executive Officer Tim Albanese is stepping down. Obviously the story made headlines across the globe since the mining giant has operations throughout the world. Let’s take a look at some of the coverage.

Here’s the New York Times’ take on the story:

Rio Tinto, the Anglo-Australian mining giant, said on Thursday that its chief executive had stepped down because of a $14 billion write-down on the value of assets that he helped acquire.

Tom Albanese is leaving Rio Tinto after joining two decades ago and spending five years in the top job. He will be succeeded by Sam Walsh, head of the company’s iron ore unit. Doug Ritchie, who led the purchase of coal assets in Mozambique whose value has dropped, also stepped down.

Jan du Plessis, Rio Tinto’s chairman, said the scale of the write-down related to the assets in Mozambique was “unacceptable.”

“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,” he said in a statement on Thursday.

The write-downs are linked to two of Rio Tinto’s biggest acquisitions in recent years: Alcan and the coal producer Riversdale Mining. The company blamed falling aluminum prices for $10 billion to $11 billion of the noncash charge. Most of Rio Tinto’s aluminum assets stem from its $38 billion acquisition of Alcan in 2007, which was led by Mr. Albanese.

The Telegraph called the write-downs “disastrous” when reporting on the details:

The mining giant surprised the markets by announcing $14bn of write-downs on acquisitions across the world. But it was the $3bn write-down on Rio Tinto’s coal assets in Mozambique, wiping out most of the $3.7bn it paid less than two years ago, which finally cost Mr Albanese his job.

Jan du Plessis, Rio Tinto’s chairman, said the “board fully acknowledges that a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable”.

The sudden departure of Mr Albanese, coming after the board concluded Mr Albanese’s position was untenable, marks yet another leadership change at the world’s biggest miners, as they struggle to deliver on their vast growth projects and M&A ambitions of recent years.

Charles Gibson, mining head at Edison Investment Research, said: “Rio was, however, until today one of the more stable miners – investors may wonder what else is out there.”

Rio Tinto has become just the latest FTSE 100 resource giant to shuffle the decks. Rival Anglo American poached Anglo Gold Ashanti’s Mark Cutifani after Cynthia Carroll’s resignation was announced in October, while the sector’s biggest miner, BHP Billiton, is still looking for a successor to Marius Kloppers.

The Financial Times outlines the terms of his departure, which weren’t generous.

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While analysts expected further writedowns over the beleaguered aluminium operations, Jan du Plessis, Rio’s chairman, called the Mozambique impairment “unacceptable”. Doug Ritchie, the executive who oversaw the deal, will also leave the group.

The pair will receive no lump sum payments on their departure or performance awards for this year. They will also forfeit their entitlements under long-term incentive plans and deferred bonus share programmes.

Mr Walsh, who will relocate to London, will receive a base salary of A$1.9m, and bonus and incentive pay of up to A$5.9m.

Shareholders in Rio welcomed the news of Mr Walsh’s appointment, arguing that the miner’s strategy of diversifying by buying assets at a premium had failed. London-listed shares in the miner closed down 1.7 per cent at £33.99.

The Wall Street Journal offered a few more details about Albanese’s tenure.

Rio Tinto had sought to use Alcan and the Mozambique coal deposits to reduce the company’s dependence on iron ore. But the aluminum market continued to deteriorate last year, held back by high energy costs and strong currencies in countries such as Australia. Meanwhile, the company has struggled with delays in developing mines in Mozambique. Rio Tinto warned in late November that a review of its business likely would mean further write-downs on its aluminum assets.

Mr. Albanese joined Rio Tinto in 1993 when it bought U.S. mining company Nerco Minerals and became CEO in 2007. The New Jersey native pushed the company to adopt new technologies to improve efficiency and cap costs, including automated trains, remote-controlled drill rigs and driverless trucks at mines.

But the Alcan acquisition has dogged him as the deal burdened Rio Tinto with debt and forced it to scale back and sell noncore assets after the market for aluminum turned. The impairment charges for the coal assets made his role unsustainable, coming with little warning to investors.

While the coverage was mostly consistent across the global, each outlook added different background information to the picture. The scope of the misstep is staggering, especially for such a large company.

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