Mining giant, Rio Tinto plc (NYSE:RIO) (LON:RIO) announced, today, a $14 billion write-down in its Mozambique coal assets and ailing aluminum business, forcing its chief executive to resign.
The Anglo-Australian firm revealed its non-cash impairments, amounting to around 3 billion, relating to its Mozambique coal project, which was acquired in 2011, and another write-down of $10 to $11 billion, related to its aluminum assets in its annual results, due 14 February.
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“The Rio Tinto board fully recognises that a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable,” said chairman, Jan du Plessis.
“We are also deeply disappointed to have to take a further substantial writedown in our aluminium businesses, albeit in an industry that continues to experience significant adverse changes globally.”
Du Plessis said the company’s CEO, Tom Albanese, has resigned, effective immediately by a “mutual agreement with the Rio Tinto board”. The new CEO for the company will be Rio Tinto’s iron ore chief, Sam Walsh. Another executive, Doug Ritchie, responsible for the acquisition of the Mozambique assets, also stepped down. These executives will not be receiving a lump sum payout or outstanding bonuses.
Walsh had been with Rio Tinto since 1991, after working for 20 years in the auto industry, serving General Motors Company (NYSE:GM) and Nissan Motor Co., Ltd. (PINK:NSANY) (TYO:7201) Australia. Walsh was appointed the head of Rio Tinto’s biggest division, iron ore, in 2004.
“While I leave the business in good shape in many respects, I fully recognise that accountability for all aspects of the business rests with the CEO,” Albanese said.
New Jersey-born, Alaska-trained Albanese has been reeling under pressure of the disastrous $38 billion acquisition of Alcan in 2007. At the time of acquisition, Rio was in a catch 22 position, to either bulk up or be bought.
“[Alcan] was always a bad deal, and Albanese was lucky not to carry the can for it back in 2008,” one of Rio Tinto plc (NYSE:RIO) (LON:RIO)’s 10 largest investors said. “Mozambique is more of a surprise, but the industry’s record on acquisitions is appalling, and Rio is not alone in destroying shareholder value.”
The announcement from the mining company comes a day before the giant revealed a record production in 2012, and also boosted its expansion plans for its flagship Australian iron ore operations.
Both announcements today, Albanese’s departure and the write-down (almost equivalent to group’s underlying profit in 2011), took the market by surprise. In the early trading session, the company’s shares were down 1.8 percent, having been down as much as 4.5 percent earlier in the day.
A report from Citi, predicts that the changes will have a negative effect in the short term, but positive for the stock and the sector, longer term. “We believe today’s announcement could significantly realign Rio Tinto plc (NYSE:RIO) (LON:RIO) with shareholder interests through reduced M&A and reduced capex spend,” says report.