Shortly after Tom Albanese (pictured) took the top job at Rio Tinto in 2007, the mining giant emerged victorious in the bidding war for Alcan, a Canadian aluminium company.No one doubted that it was a top performer, albeit in a difficult business. But the $38 billion handed over by Rio, at the top of the market, monstrously overvalued Alcan.
The deal hung over Mr Albanese’s tenure and finally ended it for him. On January 17th Rio surprisingly announced that Mr Albanese would leave the company immediately.
The trigger for Mr Albanese’s departure was a write-down of $14 billion, much of it related to the Alcan purchase. Total write-downs in connection with the deal now add up to around $20 billion. And the takeover, financed with debt, came close to sinking Rio when the financial crisis hit.
But there is also a sense that an era has passed in mining and new blood is required to face the next set of challenges for huge diversified mining firms. Cynthia Carroll, Anglo American’s boss, recently announced her departure after investors finally lost patience with the firm’s lacklustre performance.
HP Billiton has said that it is actively seeking a successor to Marius Kloppers (observers reckon that he may only remain at the helm for another year or so). And Xstrata’s Mick Davis is seeking new employment after the merger between his firm and Glencore.
Their reigns were marked by what are likely to be peaks in commodity prices and a slew of attempted mega-mergers, none of which was successful before Glencore got its hands on Xstrata.
The next set of bosses will have to deal with a cooling Chinese economy and determine what mix of commodities will best suit the country’s switch from investment to consumption.
That won’t be an easy task. Rio has been criticised for relying too heavily on iron ore, which now generates the bulk of its profits. This seems unlikely to change. Its new boss, Sam Walsh, is currently the head of Rio’s iron ore division.
The new chief executives will also have to keep an eye on spiralling costs while moving into new territories to find new ore bodies, particularly in Africa. The rise of resource nationalism and the trouble and expense of breaking ground in unfamiliar places makes that a tricky. Rio is writing down the value of its new coal assets in Mozambique by $3 billion, partly as a result of difficulties putting in place vital infrastructure to get the coal out.
The past decade looks like an aberration in the mining industry, which previously was a dull and conservative backwater. If the future sounds a bit less exciting than the rollercoaster years presided over by Mr Albanese and his peers it is because it probably will be.
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