RIO Rio Tinto Plc

   (FROM THE WALL STREET JOURNAL 3/18/16) 
   By Rhiannon Hoyle 

SYDNEY -- Rio Tinto PLC said Chief Executive Sam Walsh would retire in July, a surprise that comes as the mining giant and its peers look for a way out of a prolonged commodity slump.

Rio said Mr. Walsh, 66 years old, would be succeeded on July 2 by the miner's copper boss, Jean-Sebastien Jacques, who was named deputy CEO for the interim. The company's shares rose 5.4% in London on Thursday.

Although Rio slumped to an $866 million loss last year, Mr. Walsh has been widely credited with turning around its fortunes in his three years on the job, mainly by cutting costs and investment after several years of heavy spending on failed acquisitions.

While many of its peers continue to slim down, Rio has shown early signs of switching gears even as metals prices hover near multiyear lows. The Anglo-Australian miner has approved a bauxite project in Australia and lined up financing to expand a Mongolian copper mine -- a process spearheaded by the 44-year old Mr. Jacques.

Under Mr. Jacques, Rio could put more emphasis on mergers and acquisitions and less on its dominant iron-ore business, Paul Gait, mining analyst at Sanford C. Bernstein, said in a note.

"It is our belief that this signals a change of direction for Rio Tinto," he said.

Mr. Jacques and Chief Financial Officer Chris Lynch had long been viewed by analysts and investors as potential successors to Mr. Walsh. Mr. Jacques "has a very good CV and track record" and is a "better growth prospect" for Rio than his predecessor, said George Boubouras, chief investment officer at Contango Asset Management.

Under Mr. Walsh, a 25-year Rio veteran and its former iron-ore chief, the company flooded the global market with iron ore as prices plunged -- a calculated but risky bet that its economies of scale in Australia's remote, iron-rich Pilbara region would allow it to make a healthy profit while squeezing out higher-cost operators.

Whether the bet has paid off is arguable. Iron ore continues to account for 80% of Rio's underlying earnings, even though prices are down around 70% from their peak in 2011. But Citi recently forecast that the company could make less from iron ore this year than it did in 2006.

Last month, Moody's Investors Service lowered the miner's credit rating, saying the outlook for its markets, particularly iron ore, was deteriorating.

Mining chiefs have been caught off guard by the steep decline in prices for the commodities they dig out of the ground and sell. Mr. Walsh a year ago said the idea that a drop in iron-ore prices to $30 a ton was "fantasy land," but the price of the steelmaking ingredient earlier this year dipped below $40 a ton and analysts said it could drop to $20 a ton.

Such unforeseen declines have forced executives to backtrack on previous commitments, at times angering investors. Mr. Walsh, who last year told investors he didn't plan to cut the company's dividend, did just that last month.

When Mr. Walsh, an opera lover and former auto-industry executive, assumed the top job in January 2013, Rio had just lurched to its first-ever annual loss. Several multibillion-dollar bets on commodities from aluminum to coal had turned sour, effectively costing predecessor Tom Albanese his job.

Mr. Jacques, who will join the board right away, could either bolster Rio's current vast copper mining operations, which includes a 30% stake in Escondida in Chile, the world's most productive copper mine, or look to buy mines from struggling competitors, mining-industry experts said.

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Scott Patterson contributed to this article.

(END) Dow Jones Newswires

March 18, 2016 02:47 ET (06:47 GMT)

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