Albanese departure a long time coming

THE resignation of Rio Tinto chief executive Tom Albanese was a welcome development for shareholders, if Rio’s share price Friday was anything to go by.
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Rio Tinto chief executive Tom Albanese

Kristie Batten

Shares gained as much as 3.3% to an intraday high of $A66.76.

While write-downs are nothing new for Rio, the straw that broke the camel’s back was the announcement yesterday of $US14 billion ($A13.3 billion) in impairment charges to be recognised in the company’s full-year results next month.

It comes after an $8.9 billion impairment on its aluminium business in last year’s annual results, while this year’s write-down will be a further $10-11 billion.

Since Albanese took control of Rio from Leigh Clifford in 2007, the company has posted a staggering $20.9 billion in write-downs, $18.4 billion related to aluminium.

America-born Albanese, a mining engineer by trade, had been with Rio since 1993.

The impairments stem from Rio’s ill-timed $40 billion takeover of Alcan, a bid that was launched only months after Albanese started in the top job.

As shareholders step up pressure on boards for dividends and accountability, it was clear that Rio had to take action, with chairman Jan du Plessis yesterday describing the impairments as “unacceptable”

Further write-downs in the aluminium business were flagged by analysts including JP Morgan and Macquarie – though the figure trumped JP estimates of “several billion”

Macquarie said today that the write-down took the carrying value of Rio’s aluminium assets to $15.5 billion, in line with its valuation of $15 billion.

“As a result, this move was largely expected and perhaps removes an over-hang and puts a struggling business into some clearer air,” Macquarie said.

However, it was the $3 billion impairment on the company’s Mozambique coal assets acquired through the takeover of Riversdale Mining in 2011 that surprised Macquarie, with analysts describing it as “an early admission of poor judgement”

“The issues here stem from a smaller and lower quality resource than previously envisaged, development constraints limiting export volumes and the falling coking coal price,” Macquarie said.

Macquarie said it was just more evidence of the company buying high, selling low.

“While the Alcan deal points to a poor read of the macro environment, Riversdale also points to a poor read at the asset level,” it said.

“Both aluminium and coking coal prices falling shortly after these acquisitions further suggests that such deals are funded out of truly excess cash at the top of the cycle.

“As a result, we believe this leaves management with little mandate to consider further purchases, however, we note that Rio has quality assets and several attractive organic growth opportunities.”

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