Rio Tinto Blame Game Begins After $14 Billion Writedown
Staff Writer, CNBC.com
Rio Tinto, the mining giant, was in turmoil Thursday morning after the abrupt departure of its chief executive and the announcement of a $14 billion writedown.
Tom Albanese, who had been at the company for three decades, including nearly six years in the top job, will have to forfeit share options worth 10.7 million pounds ($17 million) after exiting the company. However, he will continue to be paid until the middle of July.
His successor Sam Walsh, head of the company's iron ore business, was given a cautious welcome by the market. Rio's share price was down by around 3 percent in early London trading, with substantially less wiped off the market capitalization than the writedown, as some traders saw its weakness as a buying opportunity.
Analysts at Barclays said the change would be "likely taken well," although the writedowns are "clearly not great" – and added that cash returns could still be possible at the company. Jefferies maintained its "buy" rating on the stock.
Walsh is "well-regarded by shareholders," according to Rupert Nathan, head of fund management at Fat Prophets.
(Read More: Rio Tinto Writedown)
There were several major factors driving the writedown. One was the difficulty obtaining coal from Mozambique operations,purchased in 2011, which has led to a $3 billion writedown. The company had planned to transport coal by barge along the Zambezi River, but its plans weren't approved.
(Read More: Rio Tinto Output)
Doug Ritchie, the former head of energy at Rio, who led the acquisition, has also stepped down from the company.
Rio, which bought much of its aluminum business through the 2007 purchase of Alcan, at the top of the market, has had to book a $10-11 billion writedown on its aluminum assets after the poor performance of the aluminum market. The strong Aussie dollar has also impacted its profits.
(Read More: Aluminum Market)
"Alcan was nothing short of a disaster. The aluminum sector as a whole has performed dreadfully. The timing was most unfortunate and the crystal ball didn't show the financial crisis," Nathan pointed out.
"This is also part of the current mood with corporate accountability. You've seen Cynthia Carroll go, Bob Diamond, even Sir John Bond."
Several shareholders contacted by CNBC declined to comment.
Written by CNBC's Catherine Boyle. Twitter: @cboylecnbc.