Rio spills first blood in a mining revolution

Rio Tinto's massive writedown underscores just how ignorant Australian mining has been in recent years. Tom Albanese is the first chief executive to face the chopping block but he won't be the last.

The resignation of Rio Tinto chief executive Tom Albanese is just the start of a revolution coming in global mining management.

There are a lot more big writedowns ahead, many of which will be in Australia and with each writedown will probably come an exiting chief executive.

Too many Australian mining chief executives have made the same mistakes as Albanese. Albanese was an effective number two when Rio’s disastrous Alcan acquisition decision was made but later he did not make the necessary management decisions to contain the impact of the enormous switch of aluminium production to the major customer – China.

I think he might have survived the new Alcan writedown but in the Mozambique coking coal acquisition he made the same mistake as so many Australian mining chief executives – he underestimated the difficulty of constructing the infrastructure. (There was also a question of the extent of the coal reserves.)

In terms of infrastructure the Albanese mistakes have a similarity to the Gorgon management errors. But here there were no Gorgon management sackings because they could blame the government and unions. As I have explained previously, at the core of the Gorgon $9 billion cost overrun were management mistakes caused by the decision to use Barrow Island to erect an LNG plant and to outsource key union agreements to the local chamber of commerce instead of making it a chief executive priority.

I am not excusing the unions and government but unlike Rio, the Gorgon management did not take its share of the blame (The great Gorgon costs debate, December 12).

Across the other side of the country similar bad management decisions were made when three LNG plants were erected at once on an island off Gladstone. Naturally costs have blown out and some of the players now have gas reserve problems.

And there are similar mistakes around the country. Managers never worked out that so many Australian mining investment projects at once would cause cost huge blowouts and make Australia a very expensive place to extract minerals.

The LNG projects will be fine if oil and gas prices stay high. My prediction is that in about three years the impact of discovering two Saudi style reserves (one in the US and one in Iraq) will mean that the lower prices of gas and oil will make the inflated construction costs hard to recover (Sheikh Kloppers and BHP's 'new Saudi', November 14).

On the positive side, the problems in Mozambique may in time give life to metallurgical coal projects in Australia. But they will require managers who can manage a workforce and not leave it to the unions.



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