Rio Tinto’s new chief Jean-Sebastien Jacques brings a unique blend of operating skills

Rio Tinto’s new chief executive, Jean-Sebastien Jacques, has surprisingly little to say on the impact of Brexit.

Jean-Sebastien Jacques in London. Picture: David Mirzoeff.

For a Frenchman who has become a Brit, Rio Tinto’s new chief executive since Saturday, Jean-Sebastien Jacques, has surprisingly little to say on the long-term impact of Brexit.

The reason for the 44-year-old’s coyness on the subject, despite an education that included his schooling at Lycee Louis-le-Grande where the likes of Jean-Paul Sartre and Voltaire were alma maters, is twofold.

“We’ve been around for 140 years; we don’t do politics, for obvious reasons,” the rugby and opera-loving Jacques points out to The Australian. Then there is the impact of Brexit, or lack of it, on the London headquartered Rio.

“From purely a Rio standpoint, the quantum of trade between our European operations into Britain, or the other way around, is pretty close to zero.

“So the direct impact of the Brexit is pretty limited. However, we are monitoring the situation very carefully and we will see what happens. But is it the main cause of concern today? The answer is no,’’ Jacques says with his usual flourish.

Jacques is not quite so coy on the federal election. Asked what he wanted to see from the new government, Jacques nevertheless framed his answer in a way that was not wholly specific to Australia.

“What we want is a good investment framework and a good investment environment. It goes to wherever we operate.

“We want stability and certainty so we can deploy capital. So whomever is in power in Australia, if they can provide us certainty about investment, that will be very good for us,’’ Jacques says.

As it is, Rio’s relatively low debt position, and the confidence that comes from iron ore prices holding above $US50 a tonne, means it is a big near-term investor in Australian growth projects.

There is the committed $2.6 billion Amrun bauxite investment in north Queensland, and the eventual $1.3bn Silvergrass iron ore development in the Pilbara as part of the push to match iron ore annual production (333 million to 340 million tonnes is forecast for 2017) to port capacity of 360 million ­tonnes.

“Australia is very important to us in the sense that it accounts for 50 per cent of our assets, slightly more than 50 per cent of our people, and it accounts for about 70-75 per cent of the free cash flow of the company,’’ Jacques says.

Jacques took over as CEO from Sam Walsh, who finished up on July 1 after 3½ years of “safe hands’’ leadership, after the Alcan aluminium and Mozambique coal disasters.

Jacques is said to be an excellent operator who has a very good strategic nose. “It’s quite a unique blend of operating skills,’’ is how one insider puts it.

He earned his stripes within the broader Rio by reaching a settlement with the Mongolian government that cleared the way for the $US5bn underground expansion of the Oyu Tolgoi copper/gold mine to proceed after years of delay.

No radical changes in strategy from Walsh’s focus on “spend every dollar as if it is your own’’ is expected early in Jacques’ tenure. Big acquisitions seem to be off the agenda.

“The strength of the balance sheet is absolutely essential for us. We are in a cyclical business. We invest not only for ourselves but for our children and our ­grandchildren. Oyu Tolgoi is a good example,’’ Jacques says.

“We have made good progress. And I think I am going to start sounding like Sam Walsh here: we are in good shape and we are profitable at the bottom of the cycle (after $US6bn in cost reductions), we still pay material dividends and we are one of the few miners able to invest in growth.’’

Jacques took the top job after running Rio’s copper unit. A science graduate from Ecole Centrale, Jacques only joined Rio in 2011. Prior to that he worked in various roles across Europe, Southeast Asia and India in industries ranging from cosmetics through to aluminium and steel.

In preparation for taking over from Walsh, Jacques took off on a whirlwind eight-week global tour.

“I’ve been twice to Australia, once to China, twice to Canada, and once to Mongolia, and maybe a few places in between I can’t remember, I have to say,’’ Jacques says. “It has given me a good opportunity to meet with the customers, mainly in China. I don’t need to tell you that depending on the year, China accounts for 40-45 per cent of our turnover.

“So I think it was important to spend a lot of quality time there.’’

China is also home to Rio’s biggest shareholder, aluminium group Chinalco, with about 10 per cent of the company.

More than Brexit, and certainly more than the outcome of the federal election, it will be China that determines Rio’s fortunes.

“On my tour I met most of the chairmen and CEOs, not least of which was the chairman of China’s state-owned Assets Supervision and Administration Commission, which controls the 108 state-owned enterprises. The chairman is Xiao Yaqing, and he use to be chair of Chinalco. He is a pretty powerful man,’’ Jacques says.

Jacques says his key takeaway from the China visit was that the investment banks predicting a second-half collapse in iron ore prices are “potentially too bearish on the level of demand in China”.

“The key to an understanding of China is the speed of the restructuring of the SOEs.

“There are lots of talks, including the potential merger between Baosteel and Wuhan Iron and Steel, across steel, iron ore and coal. And this whole question about the pace of the restructuring of the SOEs is a key source of uncertainty,’’ Jacques says.

“But demand is still pretty strong. If you look at the things that we do, all of the metrics are moving in the right direction.