In his first interview since taking over at the mining giant, Rio Tinto’s CEO talks about cutting costs and why he won’t launch a ‘bazaar sale’
He may be giving his first interview as Rio Tinto’s chief executive, but Sam Walsh has his elevator pitch well honed.
“A sudden appointment for someone who was running Rio’s largest business, the iron ore business. An operations background, both within Rio and the car industry before that. But a very heavy focus on delivery, on strategically positioning the business,” he rattles off.
It is understandable that he is keen to map out the story clearly. His predecessor, Tom Albanese, under whom he worked as iron ore chief, was forced out in January by vast $14bn (£9bn) writedowns on purchases gone bad.
Walsh, a genial Melbourne man, takes over at the FTSE 100 mining giant – the world’s biggest after BHP Billiton – at a time when falling commodity prices, ballooning costs and project overruns have left shareholders clamouring for better from the industry.
Now in situ in offices high above London’s Paddington station, he is keen to show he knows what matters to investors: “Shareholder value. That’s what drives business. That’s what it’s all about. They deserve returns.” He talks of strengthening checks and balances within the business and spending money as if it’s your own.
“The writedowns that we’ve had with Alcan and Riversdale [Rio’s purchases of an aluminium giant and a coal business] were very, very disappointing, not acceptable, not going to happen again,” he says. “I’ve been pushing the business down the path of being a business focused on cash. Clearly earnings are important, but so is cash.”
First on his to-do list is costs, with 1,500 projects under way across the business to look at how it operates. “Costs have blown out and we need to get them back to a more sensible level.
“This is about improving underperforming businesses as much as clawing back increases that we, and others, have been exposed to during the heady days of the commodities cycle.”
The second issue is delivering mining projects on time and on budget, after the industry as a whole has disappointed with delays and overruns.
At Rio’s iron ore operations in Australia’s Pilbara region, an expansion to take capacity to 290m tonnes a year will come on stream in the third quarter of this year. That’s earlier than planned, Walsh notes.
The first shipment to customers from the huge Oyu Tolgoi copper and gold mine in Mongolia is, meanwhile, expected soon. Rio remains in talks with the government, its partner in the mine, over various disputes, but he is careful to sound unruffled. “The actual timing [of a deal] I don’t know, it’s heading in the right direction,” he says.
“Those are two substantial projects that are going to make a big difference.”
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