Rio Tinto boss quits after $A13b writedown

Rio Tinto boss Tom Albanese has stepped down after the global miner announced a multi-billion dollar writedown of its aluminium and coal assets.

Doug Ritchie, who led the acquisition and integration of the Mozambique coal assets in his previous role as Energy chief executive, has also stepped down by mutual agreement with the Rio Tinto board.

The $A13.30 billion writedown of Rio's aluminium assets and Mozambique coal assets were announced in the same statement released to the Australian Stock Exchange after the market closed on Thursday.

Mr Albanese has been replaced by the company's Perth-based iron ore executive Sam Walsh.

Albanese's shock departure: Here's what went wrong

Mine Life Resources analyst Gavin Wendt said Mr Albanese's departure and the writedown were clearly linked, given that they were announced together.

Motley Fool: Albanese exit 'about time'?


Related: Rio cuts billions in spending

"It's the chap at the top who has to take responsibility," Mr Wendt said.

"It is connected, otherwise it would be a strange co-incidence to announce them at the same time.

"You'd delay the announcements perhaps, or make the resignation prior to the writedown."

The world's second biggest iron ore producer said Mr Albanese and Mr Ritchie would not receive lump sum payments, short-term performance bonuses for 2012 or 2013 or long-term share awards for 2013.

However, under Rio Tinto's 2009 performance share plan award to Mr Albanese will still receive shares worth around 1.6 million pounds ($A2.44 million) .

Further deterioration in aluminium market conditions in 2012, combined with strong currencies in certain regions and high energy and raw material costs, had a negative impact on the current market values in the aluminium industry.

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The development of infrastructure to support the coal assets in Mozambique had been more challenging than Rio Tinto originally anticipated, due to local approvals for barge transport on the Zambezi River.

Rio Tinto expects to book a non-cash impairment charge of $US14 billion ($A13.30 billion) post tax in its 2012 full year results which will be released on February 14.

The company's impairments include approximately $A2.85 billion relating to Rio Tinto Coal Mozambique as well as reductions in the carrying values of Rio Tinto's aluminium assets, including Alcan Pacific Aluminium, which are in the range of $US10 billion to $US11 billion.

Mr Albanese, who has been at Rio Tinto for more than 30 years, said that he had left the business in good shape in many respects, but he fully recognised that accountability for all aspects of the business rests with the chief executive.

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Shock in the industry

Analysts have been caught off guard by the departure of Rio Tinto boss Tom Albanese after the company announced billions of dollars in writedowns.

Shares are expected to fall on the local share market as investors digest the size of the writedowns, what it might mean for the giant mining company, and as they question the value of such a highly paid executive who apparently got it so wrong.

Gavin Wendt, the senior resources analyst at MineLife, says the surprise announcement is likely to spook the market.

"I'd imagine there's going to be at least an interim impact on the share price. That's probably going to be negative because the market just wasn't expecting it," he said.

However, Justin Urquhart Stewart from Seven Investment Management in London says he says the sudden departure as a sign of good corporate governance.

"It really came as a quite a surprise this morning but, when you look at the numbers involved, then frankly I regard it as actually good corporate governance and behaviour," he said.

Tom Albanese will not get a golden handshake. He has agreed not to take a lump sum payout or a bonus.

Justin Urquhart Stewart says that is the right decision. "Frankly, if you fail in your business, you fail and you're out. I know if I was failing in my business I wouldn't expect a golden handshake. I'd get a real good kick up the backside," he exclaimed.

Read more: 'It's a good decision'

Rio's new CEO

Mr Walsh will be relocated to London in his new role and receive a base salary of $A1.9 million.

His total remuneration, including bonuses, will increase 15 per cent to $7.8 million.

Mr Wendt said the Mozambique project was taking much longer than planned and major companies such as Rio were realising the difficulties involved in doing business outside Australia.

"It puts some of this whole political risk talk in Australia in perspective," he said.

Rio Tinto also expects to report a number of smaller asset writedowns in the order of $US500 million.

Chairman Jan du Plessis said the board acknowledged the writedown in relation to the relatively recent Mozambique acquisition was unacceptable.

"We are also deeply disappointed to have to take a further substantial writedown in our aluminium businesses," Mr du Plessis said.

He said Rio's underlying business and balance sheet remain in good health as the company undertook an aggressive cost reduction plan.

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Market Data

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    AUDEUR=X
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