Rio: Rio Tinto’s Tom Albanese has survived. After a tumultuous six months, the position of the Anglo-Australian miner’s chief executive — architect of an ill-fated deal with Chinese rival Chinalco — looks secure. Investors and analysts have put their knives away now that Rio has reined in its debt and commodity prices are rebounding.
Albanese has given his critics plenty of ammunition since taking the helm in 2007. Two months after his arrival, Rio signed the $38 billion takeover of Alcan, leaving it saddled with debts that proved unmanageable when the cycle turned sharply down. A year later, when Rio needed an urgent solution, Albanese refused to consider a more positive response to rival BHP Billiton’s longstanding proposed merger.
Having exhausted Rio's other options to secure cash, Albanese in February this year trampled over shareholder pre-emption rights to agree a controversial deal with Chinalco. Sure, he did a u-turn when markets recovered: favouring a $15 billion rights issue and joint venture with BHP Billiton which went down well with shareholders. But Rio underestimated the fallout from irritating its largest customer in such public fashion. Shortly after Chinalco was jilted, four of the miner’s employees in China were detained on suspicion of commercial bribery.
One reason investors appear willing to let Albanese off the hook is the miner’s solid operational performance. In spite of the distractions, Rio reduced its running costs by $800 million in the first half and is on track to reach a target of $2.5 billion of cuts in 2010. Rio has also repaired its balance sheet by repaying two thirds of the debt incurred with the Alcan purchase. It now has no significant debt repayments in the next two years.
Newly installed Rio chairman Jan du Plessis has publicly endorsed Albanese, who can finally get on with “the business of business”. But Rio’s chief executive's mistakes won’t be easily forgotten and the Chinese debacle may yet yield unwelcome surprises. Albanese may have survived, but he doesn’t have much room for error.