Simon Trott’s Rio Tinto strategy: ‘Faster, leaner, smarter’ will make miner great again
Rio’s former iron ore boss is doing the job he was hired to do: make a significant strategic pivot towards operational discipline, cost cuts and capital efficiency. Where the past few years at Rio has been about rebuilding the miner’s social licence and making costly bets such as lithium and iron ore through Simandou, the Trott era is all about winning over shareholders by completing existing projects over chasing new growth options. “If you try and do everything, you get nothing done,” Trott says.
The timing is deliberate. Major miners are midway through dramatically ramping up capital expenditure, particularly on copper and energy transition projects. Trott wants to regain control of ballooning budgets. He’s pulling back medium-term annual spending by $US1bn ($1.5bn), slashing billions on green energy spending, and eyeing as much as $US10bn through asset sales of non-core operations, including titanium and borates.
Most significantly, Trott is taking a cautious stance on lithium expansion compared to predecessor Jakob Stausholm’s bullish approach. While $US3bn remains committed to in-flight projects such as Rincon in Argentina, additional expansion cash will only flow when markets and returns justify it. This conditional framework marks a clear philosophical shift: returns now matter more than scale.
The question is whether short-term capital discipline comes at the expense of long-term competitive position.
As the former iron ore boss, Trott built a reputation in getting big mining projects delivered safely and on budget. He played a critical role in boosting productivity at Rio’s Pilbara iron ore mines. His elevation in August signalled that Rio intended to switch to a development and delivery phase, with the miner sitting on a full slate of greenfields projects
In his first week of his reign, Trott dismantled Rio’s antiquated operating structure. Where for years it was built around geographical and product line businesses, he delivered a leaner executive team, focused on three key units: iron ore, copper, with aluminium and lithium folded into a single unit (both rely on intensive downstream processing).
The restructure aims to accelerate decision-making and eliminate bureaucracy. It’s already delivered results: $US650m in annualised productivity benefits within three months, with significantly more targeted. A 4 per cent unit cost reduction is flagged through to 2030.
Part of the shake-up involves a “delayering” of the miner’s management ranks, which suggests job cuts of Rio’s famously large cohort of middle managers. There’s already been hundreds of job cuts at Rio’s US copper operation, but Trott wouldn’t be drawn on further job losses. But savings of this scale and in a short timeframe is expected to come with more.
In new projects such as lithium, copper and Simandou iron ore, Trott has taken a “deliver first, expand later” approach before upping capital commitments. This is significant for lithium, given bigger questions over the longer-term returns in the key battery ingredient.
Here Trott has committed to develop Rio’s greenfields lithium projects like Rincon in Argentina, with $US3bn committed. But he has warned that additional capital will only be committed when supported by markets and returns.
The overhaul has precedent. Following the commodity price collapse last decade, then BHP chief executive Andrew Mackenzie drove radical simplification around “four pillars” and productivity gains. Successor Mike Henry continued the discipline, exiting petroleum and other non-core assets. Returns improved dramatically. Now it’s Rio’s turn.
For now, investors appear willing to give Trott the benefit of the doubt. Rio’s shares have outperformed BHP’s so far this year, given Rio’s bigger near-term growth path in copper. The real test comes when market conditions improve and the tough investment decisions return.
johnstone@theaustralian.com.au
New Rio Tinto chief Simon Trott has marked his first 100 days in the role by delivering his three-point plan for the sprawling miner to go back to basics. He wants it to become leaner, more focused, and deploy its billions in capex much smarter.