Sam Walsh’s honeymoon comes to an abrupt end today.
A welcome breath of fresh air after the disaster of the Tom Albanese years, the recently installed Rio Tinto (RIO) boss so far has done everything possible to rectify mistakes of the past and put the company on a better financial footing.
But with Rio’s earnings this afternoon – expected to unveil an 18% drop in underlying earnings – Walsh will be expected to lay out his vision for the future.
The Rio veteran already has embraced the new mood among investors. Acquisitions are off the table. The quest now is about reducing costs, offloading dud assets, managing capital and lifting dividends (see Tim Treadgold's Re-examining Rio).
Rio Tinto is rapidly transforming itself into a pure iron ore play. The red ore now comprises 91% of earnings.
And this afternoon, the focus will all be on growth. But this year it will be on growth in earnings rather than production.
Rio has committed itself to lifting output at its Pilbara operations to 360 million tonnes per annum through mine expansions.
It is hoped Walsh this afternoon will probably push that project out by several years, conserving capital and reducing expenditure, a prospect that has driven the share price in recent months.
Walsh has put a suite of assets on the market since his appointment in January, with Rio recently offloading its Northparkes copper division and two French aluminium divisions, while its Canadian iron ore business and its disastrous Mozambique coal operation have yet to solicit a decent offer.
Rio has written off $US25 billion of its $US38 billion Alcan purchase, acquired when aluminium prices were at their peak. It this week announced the closure of its Canadian aluminium smelter.
After torching billions through the boom, Walsh now has the task of delivering earnings growth as prices come off the boil.