What’s wrong with Rio Tinto? How the iron ore miner went to war with itself and outgoing CEO Jakob Stausholm

Chair Dominic Barton has questions to answer as evidence points to another CEO departing on bad terms with the mining giant.

Jakob Stausholm, chief executive officer of Rio Tinto. Picture: Matt Jelonek/Bloomberg

It was the succession announcement that convinced no one but had everyone talking.

Rio Tinto put itself in the spotlight on Thursday night for all the wrong reasons by bungling another chief executive handover. As the shockwaves running through the mining industry settled, all eyes landed on chair Dominic Barton as being the source of a rift with his departing chief executive of four years, Jakob Stausholm.

Barton, who spent 35 years at McKinsey and is a former diplomat, and Stausholm have left the business world wondering: what went wrong at Rio?

Stausholm became the fourth chief executive to leave under a cloud in 12 years.

Sources close to Rio are adamant Stausholm was pushed and that the board has let down investors with a leadership own goal. He stood down after a face-to-face meeting with Barton in London this week.

Call it a “surprise”, “big surprise”, “not natural”, the scrambled succession announcement was met by shareholders with shock, puzzlement and a long list of theories about the unexplained decision.

“Something’s gone down for sure,” one analyst mused.

They were not wrong. ­Rumours of a chill developing ­between Stausholm and Barton first surfaced more than a week ago, attributed to a personality clash. The Dane and the diplomat were not getting along, such that the working relationship between the pair was too strained for Stausholm to continue.

Dominic Barton, Rio Tinto chair. Picture: Mohammad Alfares

By Friday morning, Rio’s investor relations team was in repair mode, calling investors to take their temperature on how the news had been received in the market. They couldn’t provide the clarity that was being sought.

Rio has declined to comment on whether the chair and chief executive have had a falling out.

Instead, Barton has talked about his responsibility to find a new chief executive from the time he became chair in May 2022.

Rio’s evasiveness hasn’t helped.

Has Rio gone too long, too fast on lithium as the price of the battery-making ingredient falls? Is it facing a cash flow crunch after its lithium spending spree, and will there be a writedown on those ­assets sooner rather than later?

Will Rio have to cut and run from the high-grade Simandou iron ore project in Guinea because its Chinese partners don’t share the same safety and ESG values? There have been multiple deaths in the construction phase. Will it resign itself to being a victim of the whims of the Chinese and African nation’s governments?

Rio’s iron ore dilemma

Investors are also asking questions about whether Rio has downplayed issues with the government in Mongolia, where the Oyu Tolgoi copper mine is starting to fire, and whether the challenges it faces at the Kennecott copper mine in Utah are mounting.

Or, was all of the above solvable but for the personality clash that saw Stausholm pushed out on the fifth anniversary of another Rio debacle – the destruction of 40,000-year-old rock shelters at Juukan Gorge by its iron ore ­division. The blasting of the rock shelters earned Rio international condemnation, with its social licence to operate suddenly at risk.

In operational terms, it led to the cultural quarantine of high-grade ore and some of the problems Rio faces with declining ore grades in the Pilbara.

Rio now has to open a new iron ore mine in the Pilbara every year out to 2030 while trying to maintain production and battling inferior quality at the business that provides the lion’s share of its earnings, and is expected to fund the growth in copper and lithium.

There is no agreed successor in place to replace Jakob Stausholm. Picture: Bloomberg

Perth-based iron ore boss Simon Trott is considered a frontrunner to replace Stausholm. Trott came in to lead the iron ore business and get it back on track after Juukan Gorge.

Outside the Rio executive team, fans of Newmont Corporation chief executive Tom Palmer would like to see him leave the gold miner and return to his Rio roots, even if it is a long shot.

Palmer, who worked for Rio for 20 years and is part of Australian mining royalty, has all the experience needed running mines and dealmaking.

CEO succession is considered one of the most important roles of the board.

A seamless transition of the kind BHP is hoping to achieve with Mike Henry would have passed largely unremarkably. Investors describe this process as a “soft flag” to the market, telegraphing that change is coming.

“There’s a really long-dated process to replace Mike. And this does not feel like that at all for Rio,” an investor said.

A Hunger Games-style battle has now officially started with Trott and chief commercial officer Bold Baatar.

“We aren’t going to provide running commentary on the board process, and a successor will be appointed in due course,” a Rio spokesman said on Friday.

Rio shareholder Platypus Asset Management told The Australian it did not want to see outside talent picked for the top job.

“Clearly a strong internal candidate is the preference, and continuation of the business strategy,” Platypus portfolio manager Stephen Butel said.

“I don’t think you’d want an outside candidate coming in and resetting or looking to grow by large inorganic acquisitions. More evolution than revolution would be what we’re looking for in a candidate.”

Who is the Rio CEO favourite?

London-based hedge fund Palliser Capital lost a fight for Rio to abandon its UK listing at the start of May. It now thinks the departure of Stausholm and a new CEO may hand its campaign fresh impetus.

It pointed to the BHP experience where initial disagreement over unification gave way to BHP’s Henry pushing for the move.

In the interim, Barton and the board have some messaging to finesse.

“This news comes as a big surprise and in our view was not expected; no clear reason for his departure has been given by the company other than to state that now is ‘a natural moment’ to appoint a successor – but it does not feel that natural to us,” Berenberg analyst Richard Hatch said.

“We had expected Mr Stausholm to remain with the company and drive the integration of the lithium business, so his exit comes as a surprise.”

Rio bought Arcadium Lithium for $US6.7bn last year, but prices for the commodity have not recovered to match Stausholm’s enthusiasm.

Citi agreed with market sentiment that Trott and Baatar were the leading internal candidates to succeed Stausholm. RBC said Baatar was the frontrunner.

“We believe Baatar’s communication, portfolio knowledge and problem-solving skills (as showcased during his role at Oyu Tolgoi and Simandou) would prove key in leading Rio.”

Originally published as What’s wrong with Rio Tinto? How the iron ore miner went to war with itself and outgoing CEO Jakob Stausholm