THE decision by the board of Rio Tinto to replace its chief executive and make massive write-downs on its global aluminium business and coalmining operations in Mozambique has been a long time coming.
For years the market has been quietly scratching its head that the disastrous $US38 billion acquisition of Alcan didn't cost some senior executives their jobs. On Thursday night, the board finally acted to replace chief executive Tom Albanese with iron ore boss Sam Walsh.
The final straw was the need to do what the market has been telling it to do for months: write down for the fifth time the value of its aluminium assets given the parlous state of the global market. The latest write-down of between $US10 billion and $US11 billion brings the total impairments on the Alcan acquisition to a whopping $US30 billion. Given Albanese was the chief executive at the time of the acquisition, he couldn't stay. This was compounded by the need to write off $US3 billion from the value of its $US4 billion Riversdale Mining acquisition, which was acquired less than two years ago. In anybody's books, Alcan and Riversdale will go down as two of the worst acquisitions in recent history.
For months the market has been questioning the top-heavy valuations of the group's aluminium assets on its balance sheet, and the auditors obviously took a hard line ahead of the group's annual results.
The decision to appoint Walsh as the company's new CEO should be applauded. Walsh is an all-rounder and has presided over the expansion of the mining giant's iron ore business, which is also its most profitable.
It is understood that after learning that management had made some serious errors of judgment in the purchase of the Riversdale business in Mozambique, the board finally decided to make a few hard decisions in relation to management. Besides replacing Albanese, it has also replaced the head of Riversdale.
The coal reserves and resources at Riversdale have turned out to be of lesser quality and quantity than assumed at the time of the acquisition in 2011. Worse still, Rio found out that it doesn't have enough resources in reserve to justify building railway infrastructure, hence the massive write-down.
The write-downs prompted speculation on Thursday night that other miners with aluminium interests will look at the valuation of their own aluminium and nickel businesses as represented on their balance sheets. One miner mentioned was BHP Billiton, which is also looking for a new chief executive.
Rio chairman Jan du Plessis said in a statement that a write-down of $US3 billion on the Mozambique acquisition was ''unacceptable''.
''We are also deeply disappointed to have to take a further substantial write-down to our aluminium business, albeit in an industry that continues to experience adverse changes globally.''
While the board might be disappointed, investors are equally disappointed that Rio hasn't been able to take full advantage of a mining boom but instead went on some crazy forays that didn't pay off.