Rio Tinto CEO steps down after announcing multi-billion dollar impairment

17th Jan 2013 07:19

Tom Albanese has stepped down as Chief Executive Officer of Rio Tinto and has been succeeded by Sam Walsh following an announcement by the company that it expects to recognise a non-cash impairment charge of approximately 14bn dollars (8.642bn pounds) in its 2012 full year results. The impairments include an amount of approximately $3bn relating to Rio Tinto Coal Mozambique due to the difficulties encountered in developing the necessary infrastructure. In combination with downward revisions to its own estimates of recoverable coking coal volumes at the RTCM tenements Rio decided to reassess the overall scale and ramp up schedule of RTCM, which led to the impairment announced today.The majority of the remaining write-downs relate to the carrying value of Rio Tinto's aluminium assets in the range of $10-11bn. Rio acquired Alcan for $38bn in 2007, just as the previous economic cycle was reaching its peak. Since then, it has written down a staggering $25bn of the price paid, according to estimates by Jefferies. The purchase of its other aluminium asset, Riversdale, was carried out at a price of $3.7bn, and just 18 months have passed since completing the deal.To be had in account however, at its investor seminar in Sydney, on November 29th, Rio Tinto said that the annual year-end review of asset carrying values would most likely result in further revisions to the value of assets, notably aluminium, the company explains. The group further stated that it expects to report a number of smaller asset write-downs in the order of $500m. In addition to Albanese's resignation, Doug Ritchie, who led the acquisition and integration of Mozambique coal assets in his previous role as energy Chief Executive, has also stepped down by mutual agreement. Rio Tinto Chairman Jan du Plessis said: "The Rio Tinto Board fully acknowledges that a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable. We are also deeply disappointed to have to take a further substantial write-down in our aluminium businesses, albeit in an industry that continues to experience significant adverse changes globally." He praised both outgoing staff members' contribution to the company over their tenures, saying: "I would like to pay tribute to Tom for his considerable contribution to Rio Tinto over more than 30 years of service and for his integrity and dedication to the company. I would also like to thank Doug for his 27 years of service to the Group and particularly for his invaluable work in developing our relationships in China. I wish them both well for the future." Lastly, the company explained that it continues to engage with the Government of Mozambique on all transport infrastructure options.Commenting on all of the above Jefferies analyst Christopher LaFemina declares himself unperturbed by the results, saying that: " (...) we believe the investment case for Rio remains firmly unchanged and intact. The company remains on track to deliver significant volume growth in the medium term, which should further lower Rio's already low operating costs due to the benefits of its high fixed cost leverage, and combined with declining capital expenditures should lead to growing free cash flow even as the iron ore price falls. "Rio remains one of the most attractively valued miners in our coverage at an estimated 2013 price-to-earnings ratio of 9.3 times versus the sector average at 11.0 times, and is one of our top picks for 2013. We recommend investors accumulate shares of Rio on near-term weakness." The company's shares are falling 3.3% to 3,344p at 08:23.MF