'Long-standing steward of iron ore' ... Sam Walsh Photo: Jim Rice
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Investors have reacted positively to Rio Tinto chairman Jan du Plessis’ bold move to dump chief executive Tom Albanese, and shrugged off the miner's unveiling of larger-than-expected write-downs against its aluminium and Mozambique coal assets.
Rio Tinto shares have opened up 1.7 per cent on the ASX this morning, rising $1.11 to $65.71. In London overnight, Rio initially fell by as much as 5 per cent but recovered to close just 0.5 per cent down.
Though shocked at the size of the $US14 billion ($13 billion) in write-downs announced last night, investors welcomed the elevation of Australian Sam Walsh as chief executive, in the expectation he will bring a new conservatism and capital disclipline to the company.
UBS resources analyst Glyn Lawcock welcomed the appointment of Mr Walsh, a ‘‘safe pair of hands’’ who was the ‘‘logical successor’’, and said the scale of the $3 billion impairment of the former Riversdale coal assets in Mozambique ‘‘raises questions about the due diligence process and was the primary driver of the need for management accountability’’.
But Mr Lawcock said while the size of impairments and management change were a surprise, these were ‘‘legacy issues’’ which did not impact UBS’ valuation or earnings forecasts for Rio.
JPMorgan analyst Lyndon Fagan said the appointment of the capable Sam Walsh, ‘‘a long standing steward of iron ore’’ whose division already controlled three-quarters of Rio’s earnings, was positive for shareholders on the basis it should result in an ‘‘acute focus on capital discipline’’.
‘‘In our view, price weakness on the back of this announcement represents an attractive buying opportunity... in our view, the charges represent a clean out of carrying values, with further material charges unlikely medium term’’.
Mr Fagan wrote: ‘‘ all senior executives responsible for the failed Alcan transaction, which has been an overhang since the deal was completed in 2007. This revitalization of management may encourage some investors back into the stock who exited following dissatisfaction with the deal.’’
Citi’s Clarke Wilkins said while yesterday’s ‘‘watershed’’ announcement and ‘‘mammoth writedowns’’ would be perceived negatively in the short-term, they should significantly realign Rio Tinto with shareholder interests through reduced spending on mergers and acquisitions and capital expenditure.
‘‘Though Rio had indicated the potential for write-downs in aluminium during its investor day in Sydney in November 2012, the size of writedowns will have taken the market by surprise, in our view.’’