Rio Tinto today announced that its assets are not as recoverable as originally predicated and as a result expects to recognise a non-cash impairment charge of approximately US$14 billion (post tax) in its 2012 full year results. The announcement subsequently sees CEO Tom Albanese step down as chief executive with immediate effect.
The impairments include an amount of approximately US$3 billion relating to Rio Tinto Coal Mozambique (RTCM), as well as reductions in the carrying values of Rio Tinto‘s aluminium assets (mostly Rio Tinto Alcan (RTA) but also Pacific Aluminium) in the range of US$10-11 billion.
The group also expects to report a number of smaller asset write-downs in the order of US$500 million. The final figures will be included in Rio Tinto‘s full year results on 14 February 2013.
Tom Albanese’s resignation is by mutual agreement with the Rio Tinto Board. Rio Tinto Iron Ore chief executive Sam Walsh has been appointed as his successor from today. Doug Ritchie, who led the acquisition and integration of the Mozambique coal assets in his previous role as Rio Tinto Energy chief executive, has also stepped down by mutual agreement.
“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,” says Rio Tinto chairman Jan du Plessis.
“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.
“Rio Tinto‘s underlying business and balance sheet remain in good health, and we are taking decisive action to improve our competitive position further with an aggressive cost reduction plan. As announced on 15 January, we had a strong production year in 2012, particularly in our low-cost iron ore business where we produced a record 253 Mt. Since the price of iron ore dropped to a low of less than $US90/t last September, prices rebounded strongly reaching a level of around $US150/t earlier this week, albeit in an environment of continuing volatility.”
“While I leave the business in good shape in many respects, I fully recognise that accountability for all aspects of the business rests with the CEO. I am pleased that someone of Sam‘s calibre and values has been chosen to succeed me as chief executive. This is a great company and Sam will do an outstanding job,” says Albanese.
The further deterioration in aluminium market conditions in 2012, together with strong currencies in certain regions and high energy and raw material costs, has had a negative impact on the current market values in the aluminium industry.
In Mozambique, the development of infrastructure to support the coal assets is more challenging than Rio Tinto originally anticipated. Rio Tinto sought to transport coal by barge along the Zambezi River, but this option did not receive formal approvals.
These infrastructure constraints, combined with a downward revision to estimates of recoverable coking coal volumes on the RTCM tenements, have led to a reassessment of the overall scale and ramp up schedule of RTCM, and consequently to the impairment announced today.
Rio Tinto continues to engage with the Government of Mozambique on all transport infrastructure options.