At BHP, chief executive Mike Henry is pushing into his sixth year, and career banker McEwan will be deep into the succession planning process. It is expected that McEwan, who took charge in May, will want to get a full year in as chairman before replacing Henry.
This means BHP won’t make a call on its CEO until later next year; the mining major has a tradition of making a post-annual meeting leadership announcement.
Although if Henry really is in a hurry to do something else, there’s a growing school of thought the changeover announcement will be as early as this year.
McEwan honed his banking career on instinct over process, so he will move when the time is right. The lesson from Rio Tinto’s CEO decision has been around continuity, picking a candidate with deep operational experience and productivity gains, and someone who is less inclined to pursue M&A to grow.
Rio Tinto’s naming of Trott this week signalled the miner will be internally focused for the coming years, given there is a full slate of greenfields projects – from copper and iron ore to lithium – to get under way. As Rio’s iron ore boss for the past four years, Trott was backed for his experience in getting big mining projects safely delivered, as well as improving productivity across his remote Pilbara mines.
After going backwards in production for years, Trott’s iron ore business stabilised output and then incrementally increased in each of the past two years. Second-quarter production figures released Wednesday show Trott’s Pilbara iron ore business posted its highest ever second quarter production numbers since 2018 – up 5 per cent on the same time last year.
Rio is sticking with its full-year iron ore shipment guidance despite the March quarter shutdowns due to cyclones. In London Rio’s shares added 1.6 per cent – the first market to digest the CEO news.
One big factor in Trott’s presentation, which is understood to have impressed the Rio Tinto board led by Dominic Barton, was his use of technology through the iron ore business. That included doubling down on the remote workforce and accelerating the rollout of driverless haul trucks to the point whereby 85 per cent of the fleet is now driven remotely from a warehouse in Perth.
Trott has overseen the expansion of driverless trains, with hundreds of trains each week being driven remotely.
But it is the use of big data to speed up the sequencing where real gains have been made. The options for driverless technology is compelling for high-cost jurisdictions such as the US, where Rio wants to start work on its Resolution copper mine (pending approvals). Also, there’s a string of remote locations, from Argentina to Guinea, where remote technology looks compelling.
In a call with investors in London overnight, where the bulk of Rio’s big shareholders are based, Barton emphasised Rio’s key commodity line-up of iron ore, copper, aluminium and lithium won’t change; although the focus continues to be on diversifying away from iron ore.
Trott would continue to push the operational excellence and cost reductions while potentially shaking up Rio’s relatively complex and top-heavy organisational structure, he said.
Barton too told investors that while Rio will be alert to M&A, the desire is to grow internally, and the bar will be set very high. This suggests Trott will be less inclined to undertake mega M&A, including persistent talk around Rio Tinto and parts of Swiss-based Glencore looking to get together.
It was significant that Barton alone oversaw the investor briefings, while outgoing CEO Jakob Stausholm took a back seat.
Stausholm’s four-and-a-half year tenure was cut short by Barton in May. The outgoing Rio boss has agreed to stay on until the handover, after the miner’s first-half results next month.
Barton has told investors that the two-month wait in naming a successor is not unusual, and succession planning had been under way inside Rio for more than two-and-a-half years, as internal and external candidates were benchmarked.
Barton has pointed to the HSBC succession process last year, in which the global banking major took three months to name an internal contender (Georges Elhedery) to take charge after former CEO Noel Quinn unexpectedly stood down.
Barton is understood to have told investors he believed Rio’s process moved forward in a steady and transparent way.
Peak private credit
Could the private credit boom be peaking just as it seems to be really heating up?
The rush to private markets has been the biggest thing to up-end banking over recent years. That’s where big investors such as super funds are bypassing banks and making loans directly to business. The returns for investors in private credit have been big, the losses so far minimal, and for businesses borrowing the funds, they say the rush of liquidity means they are getting a cheaper rate and more bespoke loans than traditional banks.
The burgeoning size of private markets – no one really knows how big it is – has started to exercise regulators. Australia’s corporate watchdog, ASIC, has launched a review into the sector, mostly as a fact-finding mission to get across the potential for risks in dark markets. The Reserve Bank has taken a stab at estimating the size of the Australian private credit market at $40bn. Unofficial estimates, including those from EY, say the number is closer to $200bn. The biggest players in private credit include Wall Street names Blackstone, Apollo and KKR.
The Swiss-based Bank of International Settlements reckons the global market has $US2.2 trillion ($3.4 trillion) under management. The BIS recently raised concerns about the leverage sitting in private debt funds, the illiquidly of private loans and their interconnections with the banking system. With central banks now starting to take greater interest in the risks, this suggests more official scrutiny of the sector is coming.
JPMorgan Chase chief executive and influential Wall Street banker Jamie Dimon told his investors he believes the world is moving closer to “peak private credit”. The boss of the US’s biggest bank was speaking around buying an established private credit fund to get a slice of the action. But Dimon argued the volume of money now flowing into private credit has made the returns very low.
“I think you may have seen peak private credit a little bit,” Dimon said on an investor call. “I’m not saying it’s not going to grow some more, but I would have a slight reluctance (to grow in the space).”
He says he believes additional regulation being piled on banks has been a big factor behind the growth in private credit.
There might be plenty of talk of the Trump administration slashing red tape on big business, but Dimon says there are no signs yet of regulators relaxing the rules for banks.
“(Regulators) should take a deep breath, step back, and look at the system and answer the question, how can we make it better and stronger for the economy and all involved?” he says.
The growth in private credit has had the unintended consequence of seeing more companies stay private. This has seen the size of public markets starting to shrink, both in the US and around the world.
Australia’s Macquarie Group essentially called time on global public markets recently through the recent sale of its asset management business that oversees more than $285bn in global shares and bonds.
Dimon says with the volume of funds in public markets, regulators need to start answering the question: “What do they actually want in our public markets versus our private markets?
“Obviously, I’m not against private credit. Private credit is growing. And how do you really want to structure this?”
johnstone@theaustralian.com.au
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