The Rio board, led by former Canadian diplomat and McKinsey veteran Dominic Barton, is betting big that Rio can handle the trade-off between today’s disruption in order to get the miner shifting up a gear over the medium to longer term.
It’s a high-risk move they are making to be sure, given Rio’s track record of being accident-prone, particularly when management is distracted.
From inside the boardroom, the view was that Jakob Stausholm had done the job he was hired to do, namely to bring stability and predictability to the business, and now it’s time to pivot to someone else to deliver growth and regenerate the miner’s rapidly maturing assets.
It’s a shortsighted approach for an industry that demands long-term planning cycles.
Now the internal race is on between iron ore boss Simon Trott and the increasing global favourite, Bold Baatar, the commercial boss and former copper head. Also in contention is minerals boss and former energy executive Sinead Kaufman. If Barton’s board goes for an internal choice, which is more than likely inside a complex miner like Rio, the candidate coming second will leave. This will trigger a fresh round of upheaval.
BHP has its own succession race under way, although under new chairman Ross McEwan the process will be much smoother. Mike Henry, who was appointed CEO at the start of 2020 is widely expected to flag his retirement within the next year, to also be replaced by an internal. Rio has introduced a new round of unpredictability into this race and will be running its eyes over BHP’s executive pool, including names such as Vandita Pant and Ragnar Udd.
Stausholm was a little over four years into the role and, after coming off another round of his regular global roadshows and site tours that took in South America, Canada, US and Australia, the expectation among big investors was he was clearly preparing for more.
He had spoken to investors of the momentum in the business and this year was shaping up to be a pivotal one for the big growth projects Simandou iron ore in Guinea and Oyu Tolgoi copper in Mongolia. The Dane had been elevated into the top job at the start of 2021 by the former board in the midst of the Juukan George wildfire. After a firmly eurocentric view of the world under former boss Jean-Sebastien Jacques, Stausholm’s mandate was to repair and rebuild relations with pretty much everyone – including inside Rio’s own workforce.
Whether it was Mongolia, the Pilbara, Canada or Canberra, Rio had spent too long fighting battles on multiple fronts, and its operating performance and planning was badly suffering as a result. The Juukan cave disaster had merely exposed the culture already building inside the miner – insular, and lacking trust. It was highly fragmented, lacking a centre of gravity, where ideas weren’t being contested or warnings escalated.
Ironically, it was the job Stausholm was hired to do, of stabilising a deeply troubled Rio in a short period, that ultimately paved the way for his early exit. However, Stausholm had always wanted his legacy to be more than a stabiliser or quick-fire CEO. He wanted to be a change agent.
The 56-year-old is a dealmaker and had put M&A back on the agenda for the first time since Rio’s near company-destroying Alcan acquisition in the lead-up to the Global Financial Crisis. In his first 18 months he spent more than $US3.3bn to clean up Rio’s fractured ownership of the Oyu Tolgoi mine in Mongolia, the world’s largest known copper and gold deposit. Rio now directly controls 66 per cent of the deposit, which was picked up at a fraction of the price copper assets are fetching.
Under Stausholm, Rio had run the numbers on $US18bn ($28bn) Canadian copper and zinc miner Teck Resources and more recently kicked the tyres on a mega-merger with $80bn Glencore. (Rio has declined to comment on both.)
Then late last year, Stausholm placed his biggest growth bet yet. He wrote a $US6.7bn cheque for Argentina-focused lithium player Arcadium, significantly lifting Rio’s exposure to a commodity that to many is highly speculative.
That deal places Rio as the first of the top-tier miners to take lithium seriously. Arcadium comes with significant execution risk as well as growing doubts over the role of the metal in the renewable energy shift. Even so, the deal had the blessing of the board. Just this week Stausholm went deeper into lithium with a $US900m binding commitment in a lithium joint venture in Chile with Codelco.
The rich Simandou iron ore mine remains Rio’s longest-term bet, with Rio set to spend $US6bn over coming years. First production from the mine remains on track by the end of this year. Meanwhile ramp-up from the Oyu Tolgoi mine has been seamless with output expected to increase 50 per cent this year.
Still, Rio has been arguably slow to open up new sources of growth in the rapidly maturing Pilbara operations, with new sources of growth such as the Rhodes Ridge project not expected to come on stream until later this decade. However, a wake-up call of declining grades will see the miner fast-track this move.
Moving on a CEO without a succession plan under way is a perplexing move by Barton’s board. Certainly it’s not a case of grindingly poor performance. Stausholm has delivered near 40 per cent shareholder returns since taking charge and emerged last year with a pay rise and a new $14m long-term bonus package. The full payment is on the assumption Rio can hit its performance hurdles until the end of 2027.
Inside the business he also rolled out a new operating platform, the Safe Production System, that is now being credited for delivering much-needed operational stability, cost control and incremental growth from mature mines. In a complex miner, a program such as this can only come from a stable management team.
Rio this week guided staff internally it expects to have a new boss named by October. Stausholm has said he plans to remain until a successor is named.
“It is business as usual,” he told Rio staff this week.
There is plenty of financial incentive for Stausholm to play his exit by the book. As a good leaver, he’s entitled to his entire 12 months pay and pro-rata payment of the bonuses awarded to date.
The Rio upheaval is a reminder that mining, for all its smoothed edges, is still a tough business and, even when things are going relatively in your favour, it can come undone at any moment.
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