THE DISTILLERY: Rio washout

One jotter calls Tom Albanese the victim of low aluminium prices, while another says the market saw Rio Tinto's writedowns coming.

A $14 billion dollar writedown is about as good an excuse as any to end the tenure of a chief executive who had already been around for almost six years. Rio Tinto boss Tom Albanese is no more, replaced by iron ore chief Sam Walsh.

It’s been coming for a long time. This morning, Australia’s business commentators have a story for you they’ve been waiting years to tell.

The Australian’s Barry Fitzgerald says that two things have to be said about Albanese before his legacy is seriously considered. He’s a decent bloke and just about the unluckiest chief executive around.

"After the global financial crisis that made any deal look sick for a time, the global aluminium industry failed to rebound like the rest of the commodity industries. China made sure of that, with its access to cheap coal, cheaper labour and questionable environmental practices underpinning the hand-over-fist growth of a domestic aluminium industry. The structural change wrought on the world's supply-demand outlook for the light metal has been telling, which is why smelters here have either closed or are on government handouts. Aluminium now sells for about US90 cents a pound. Had it tracked back after the financial crisis to something like $US1.20 a pound, Albanese would still have his job.”

Business Spectator’s Stephen Bartholomeusz recalls that Albanese barely survived the first writedown on the aluminium business, saved only by the good grace of then-incoming chairman Jan du Plessis to replace the outgoing Paul Skinner.

"Skinner was essentially an executive chairman and, with Albanese having only just been appointed chief executive when the Alcan bid was made, Skinner was seen as the prime mover in an acquisition that brought Rio to its knees and almost delivered it to BHP Billiton and later China's Chinalco. Five years after the event, and after continual restructuring and writedowns on the Alcan assets, however, there is little doubt that the business is Albanese's responsibility and the latest writedowns sealed his fate.”

Fairfax’s Adele Ferguson agrees with Bartholomeusz that Albanese’s departure has been a long time coming as the Alcan acquisition continues to haunt the miner. But she also explains that the market saw these writedowns coming.

"For months the market has been questioning the top-heavy valuations of the group's aluminium assets on its balance sheet, and the auditors obviously took a hard line ahead of the group's annual results.”

On du Plessis, the manner in which Albanese has been dismissed signals to The Australian Financial Review’s Chanticleer columnist Tony Boyd that the South African-born chairman is more ruthless than some might give him credit for.

"He might be softly spoken, but du Plessis has shown that when management destroys shareholder funds through bad planning and poor due diligence, there will be severe consequences. This is a welcome development in the corporate governance standards at big global mining companies. Up until now the boards at both Rio and BHP Billiton have been far too forgiving of management mistakes.”

Albanese’s departure doesn’t add to the scale of the search for new chief executives in the mining industry because Walsh simply steps straight in, as has been expected for a long time. But The Australian Financial Review’s Michael Smith writes that the timing of the decision coincides with an unparalleled period of upheaval at the very top of the world’s major mining companies.

"BHP Billiton, Anglo American, Xstrata, and Newmont Mining have either announced they are looking for new chief executives or are quietly speeding up succession planning behind the scenes. There has not been change at the top in the global mining sector for a long time, despite the instability caused by the global financial crisis, cost pressures and a series of failed multibillion- dollar mergers. Albanese himself managed to survive a controversial deal to buy China’s Chinalco, the debt-fuelled Alcan acquisition and takeover advances from BHP Billiton. It was the $US14 billion in write-downs that got him in the end and a nervous board’s desire to have a safe pair of hands at the wheel in the form of Sam Walsh.”

Smith goes on to write how "it was the $US14 billion in write-downs that got him in the end,” and The Distillery would greatly like to know whether he was using that wording ironically. Fourteen billion dollars is the kind writedown that would end the career of many CEOs, rather than being just that last nail in the coffin.

On the new Rio boss, Fairfax’s Peter Ker explains how Walsh breaks the mould that we typically reserve for the archetypal mining executive.

"A refined lover of the arts, Walsh gives the impression that his collection of antique milk jugs are his proudest achievement in life. ‘I just about have a heart attack when someone sort of swings (one of his jugs) around the table without realising it is 400 years old or 2000 years old,’ he told Fairfax Media in a recent interview. ‘I jokingly say 2000, but I do actually have one that is that old.’”

By the way, the Rio announcement came at 6:23pm, which means the thousands of words these commentators wrote would have been madly cobbled together as evening deadlines approached. Well done to Australia’s hard-working business writers.

Meanwhile, Fairfax’s Michael Pascoe has a few ideas for politicians as we approach the inevitable point where tax collections rise to pay for our rising government costs. One of them in particular caught The Distillery’s eye – renaming the Goods and Services Tax (GST) the Health Services Tax (HST).”

"Electors are more willing to pay tax if they understand where the money goes,” writes Pascoe. That is absolutely true.

In other domestic matters, The Australian Financial Review’s Matthew Stevens says the state of play between Asciano and NSW coal train drivers is so bad that there’s a real possibility of coal exports from the Hunter Valley grinding to a halt.

The Australian’s John Durie expects the market to take a bit of a spill next month unless the big corporates exceed expectations in the upcoming profit season. The numbers just don’t justify the latest rally.

The Australian’s economics correspondent Adam Creighton weighs in on the Australian board female quota debate. The Distillery doesn’t mean this to be an insult to Creighton, but it’s the same arguments that have been kicked around for years. It’d be a challenge for anyone to bring something new to this discussion.

The Australian’s Bryan Frith points out that Discovery Metals will have to update investors on the state of things at its Boseto copper project in Botswana thanks to the agitations of its suitor.

And finally, The Australian Financial Review’s Karen Maley explains that the big US investment banks, most recently JPMorgan, have Federal Reserve Chairman Ben Bernanke to thank for much of their fortunes.

For example, Maley points out that JPMorgan’s latest results were largely helped by corporate refinancing, which was encouraged by record low interest rates.

Related Articles