Rio Tinto sacked chief executive Tom Albanese on Thursday and revealed a $14 billion writedown in connection with his two most significant acquisitions, Mozambican coal and the Alcan aluminium group.
A mining heavyweight who joined Rio two decades ago, Albanese will be replaced by iron ore boss Sam Walsh. Doug Ritchie, who led the acquisition and integration of the Mozambican coal assets, was also shown the door.
Alaska-trained Albanese had until now survived the consequences of his disastrous $38 billion acquisition of Alcan in 2007, a bruising top-of-the-market deal when Rio was under pressure from rivals to bulk up or be acquired.
The deal turned bad as markets crumbled and aluminium prices slumped. Rio has since seen years of losses in aluminium and taken billions in impairments - it had already taken an $8.9 billion charge on those struggling assets a year ago.
Walsh was welcomed by investors and analysts as a safe pair of hands, but many questioned whether the veteran would be a long-term solution for the group, and raised concerns over management of a group that also announced the departure of its chief financial officer last July.
"It's another black mark in terms of (Albanese's) M&A record and I suppose, given the magnitude of this writedown ... I'm not surprised that he's stepping down with this, nor am I surprised that Doug Ritchie is," analyst Jeff Largey at Macquarie said.
Rio had planned to shrink the aluminium division by hiving off most of its Australian and New Zealand assets, but industry sources say it has not been mobbed by buyers.
Albanese then spearheaded a deal to buy Mozambique-focused coal miner Riversdale in 2011, fighting off rival bids from steelmakers. There, however, Rio has come up against infrastructure problems more challenging than anticipated.
News of Albanese's departure and the writedown, more than twice its 2011 profit, took the market by surprise, knocking Rio shares down 2.5% to 3,372 pence in early London trading.
"I wasn't expecting the $14 billion writedown," said Tim Schroeders, a portfolio manager at Pengana Capital, which owns Rio Tinto shares. He said the departures pointed to a company under pressure to do a better job of managing its purse strings.
"I think it's clearly a case of the board's laid down the law in terms of stricter accountability than we had pre-(crisis)," he said.
Taking the hit
Rio said on Thursday the impairments would include a charge of around $3 billion relating to the Mozambique business, as well as reductions in the carrying values of Rio's aluminium assets in the range of $10 billion to $11 billion.
The group also expects to report a number of smaller asset writedowns in the order of $500 million. The final figures will be included in Rio Tinto's full year results on February 14.
"It is non-cash, it doesn't impact valuation, it doesn't impact the earnings near term. But (flagship Mongolian copper-gold mine) Oyu Tolgoi's still to plan," said one London analyst who declined to be named. "For me, it's clearly negative, but it's not the end of the world."
Neither Albanese nor Ritchie will take lump-sum payments and both will forfeit bonuses on departure, including outstanding bonus share entitlements earned in previous years.
Albanese is the latest chief executive of a major mining company, many of whom took the reins in 2007, to step down or announce his departure. BHP Billiton has said it is seeking a replacement for chief executive Marius Kloppers, and Anglo American has replaced chief executive Cynthia Carroll.