Rio Tinto Looks to OT Thursday, 24 January 2013 13:15
Source: Financial Times
Massive writedowns by Rio Tinto PLC has the Anglo-Australian diversified miner putting more focus in its investment in the Oyu Tolgoi copper-gold project.
Impairments have now eaten away at some USD 20 billion to USD 25 billion of the USD 38 billion the miner paid for Canada's Alcan in 2007, analysts estimate. The dealconsidered expensive at the timeproved disastrously timed, sealed as the global financial crisis hit and demand from industrial users slumped.
The transactionpitched as a way for Rio Tinto to diversify away from its core iron ore operations in the Pilbara in Western Australiawas also a strategic flop. Rio Tinto still makes more than 80 percent of its profits in iron ore, while the beleaguered aluminum operations barely contribute.
Yet Alcan was not the eventual downfall of Tom Albanese. Nor was it the rejected EUR 67 billion approach by BHP Billiton in 2007, or the failed fundraising deal with Chinalco in 2009. Instead a USD 3 billion writedown to a coal project in Mozambique, purchased only two years ago for USD 3.7 billion, forced the unexpected departure of Albanese and Doug Ritchie, the former head of energy who led the deal.
For Rio Tinto, two attempts to branch out from Australian iron ore have gone awry, leaving the miner among the least diversified of its peers. But the message from Chairman Jan du Plessis is that the strategy remains unchanged. Putting it into action will now fall to Sam Walsh, the Australian head of iron ore who has been with Rio Tinto since 1991.
Du Plessis adds, Sam Walsh is a hugely experienced operator who knows the industry inside and out and has been on the Rio board for four years. The transition will be swift and smooth.
Among his priorities will be ensuring that Rio Tinto's big development project in copper, Oyu Tolgoi, reaches commercial production on schedule in the first half of this year and that political debate in the country about how to secure its fair-share from mineral extraction does not endanger further progress.