Rio Tinto’s new chief starts miner’s green journey

Rio Tinto chief executive Jakob Stausholm in Perth on Wednesday. Picture: Colin Murty for The Australian

Jakob Stausholm has escaped Covid quarantine in Perth and is starting from 46,000 years behind in social licence terms but the new Rio boss appears to be heading in the right direction.

His profit numbers come in ahead of estimates and his dividend at $5.57 represents a 72 per cent payout ratio which again was ahead of the market even if a touch below BHP’s 85 per cent payout.

Stausholm went out of his way to stress his environment, social and governance (ESG) credentials including another meeting with his PKK counterparts this week and a new commitment to actually work with customers to reduce carbon emissions.

BHP has already walked down this path but Rio Tinto previously had kept clear so now the big two producers are committed to cutting their own emissions to help the market also reduce carbon.

Stausholm has also read the tea leaves and has committed to putting his carbon disclosures to an annual vote by shareholders just like remuneration reports as is about to be formally declared compulsory under UK rules.

His change is welcome and an acknowledgment that the issue is no longer divisive with the world united on the need for change with China promising to be net neutral in 2060.

The way Stausholm looks at it if you worked back from the net neutral promises something has to start today.

He is determined to show Rio as the best operator on costs – which also takes into account environmental commitments.

Rio’s largest shareholder is China’s Chinalco and the country accounts for 58 per cent of his revenue so the country is pivotal to his future as it is to the Australian economy.

All that needs to happen now is someone to explain that to Prime Minister Scott Morrison.

Pressure on Gaines

Fortescue boss Elizabeth Gaines talks a lot about culture but some in the market wonder whether the heads which rolled this week were really deserved or just the result of a temper tantrum from company founder and one third owner Andrew Forrest.

Thursday’s presentation will have to be explicit about the nature of the cost overrun at its Ironbridge magnetite project to satisfy the naysayers.

Today the company’s stock price has recovered most of Tuesday’s losses which takes some pressure from Gaines.

But her former chief operating officer Greg Lilleyman is highly regarded in the industry and let‘s face it Gaines will report a record profit of just over $US4bn for the latest half so cost overrun aside you would have to say Lilleyman has done his job.

Magnetite projects are more complex than digging up iron ore to ship to China so the fact there is a circa 30 per cent cost overrun on a $2.6bn project is in some eyes evidence that the punishment did not fit the time.

The market consensus says the project cost estimates were too optimistic from any one and when problems emerged the project team kept it quiet and if Lilleyman didn’t know about it he should have.

Inevitably Forrest will come under the spotlight because while the costs were blowing out he was on a global tour with deputy chief Julie Shuttleworth and others looking at Fortescue Future Industries the next growth leg.

Fortescue has ridden the China boom to perfection but Forrest has hit a speed bump.

Shuttleworth is a potential replacement for Lilleyman but then again she is meant to be working on the future so what would that tell us about what has happened.

Some saw Fortescue as really a private company and despite its famed culture, like any company controlled by a dominant boss, staff tend not to report the bad news up the management line.

Thursday’s dividend decision will be worth watching in the view of the cost overrun.

Is this the right time to be paying out $4.4bn in dividends of which one third goes to the founder?

Thursday’s presentation will be crucial for Gaines in settling market questions on the company.

Forrest’s success has been all about over promising and over delivering but that too works better in a bull market.

Thursday ’s presentation has taken on a lot more significance for Gaines and Forrest because it is no longer a bull market review its now very much a market sounding on just what culture does mean at Fortescue.

Treasury split

The challenge for Treasury Wines Tim Ford on Wednesday was to convince the market there was growth left in the wine company even after the Chinese Government wiped out Australian wine from its market.

In the first half Ford reported $284.1m in earnings of which $78m or 28 per cent came from China and full year he is talking about $500m in earnings.

There will be zero from China so the rest of the company will have to make up the difference and that is the short term promise from Ford with Europe and the US doing better than expected.

There is nothing much Ford can do about the incompetence of Australian politicians who have let relations with the country’s most valuable trading partner get to these levels but he is attempting to use his global French to fill the gap.

China was estimated to account for $200m of the $273m in sales over the next three years.

Ford will use the brand now for US and European wine so the Penfolds brand will still live in China just that it will be US or French wine inside.

That is smart thinking but is just a step in the right direction.

As flagged by Eli Greenblat in The Australian, Ford also plans to split the company into three operating divisions, Penfolds, Premium and Americas.

Just how much this is window dressing and how much a smart move to increase accountability and focus remains to be seen but if the recovery is sustained it does leave the door open to the promised split down the track.

For the moment it‘s all about head office and shared services and brand focus which ticks the business school strategy box.

Treasury came in ahead of estimates resulting in a 2.5 per cent boost to its stock price to $10.15 a share.

Coles cools outlook

Coles boss Stephen Cain single-handedly depressed the market’s view about supermarkets when in truth his talk about the negative effects of Covid are more Coles specific than industry wide.

Cain is right to note immigration won’t increase any time soon and that will have a negative impact on the Australian economy and Victoria in particular.

Coles‘ problem is it is overweight Victoria , more stores in shopping centres and underweight regional Victoria so is suffering from the exodus of people from the State or from Melbourne to the regions.

The demographics can’t be changed in a hurry but the reality is nationwide Coles appears to be losing market share with slower growth than reported for the market .

Next week’s Woolworths numbers will show just how much Wednesday’s caution from Cain was Coles specific .

Cain has to work with the cards he was dealt after a period of under investment from previous owners Wesfarmers but he has the recovery tools in process with online fulfilment from UK based Ocado and Witron distribution centres.