By Darren Gray
December 4, 2017 - London-based former investment banker Simon Thompson has been given the job of leading the Rio Tinto board as the miner faces scrutiny from regulators in America and Australia over its behavior surrounding a failed coal investment in Mozambique that it sold in 2014.
Thompson will become Rio's next chairman when he succeeds Jan du Plessis in March 2018. He joined Rio's board as a non-executive director in 2014.
The experienced mining industry executive, who has worked in the mining and metals industry across five continents, will assume the role of chairman with the miner on a sound financial footing, earning large profits and spinning off billions of dollars a year to shareholders, yet facing uncomfortable scrutiny from regulators.
The appointment of the 58-year-old was welcomed by chief executive Jean-Sebastien Jacques, the Australian Shareholders' Association and investors, with shares in Rio rising 1.2 percent on Monday to $72.05.
"He's a real miner, he's spent 20 years in the industry. The second point [is] he has worked in many countries, which is important when you are working in a global company," Jacques told Fairfax Media on the sidelines of a Rio investor seminar in Sydney.
"He has been the chair in different companies, so he knows what governance looks like," he said.
"I've known the guy for a long time, and he fully endorses, fully embraces, fully supports the value-over-volume strategy. So there will be no change on strategy at all, which is what the shareholders want to hear," he said.
du Plessis praised Thompson as the company ended months of speculation about the identity of its next chairman. "I am really pleased to be succeeded by Simon, especially given how closely we have worked together since he joined the board some three years ago. I wish him the very best. I am handing over the baton at a time when the business is in great shape and Rio Tinto has the strongest balance sheet in the sector," he said.
Thompson said: "I am honored to accept this role and to succeed Jan as chairman. Rio Tinto is in great shape, with a strong management team, world-class assets and a successful strategy. I look forward to leading the board as we work with J-S and his team to ensure that Rio Tinto continues to deliver superior returns for its shareholders by maintaining its capital discipline and 'value-over-volume' approach."
Under Thompson's chairmanship the company will have to respond to the bombshell charges recently unveiled by the US sharemarket regulator, the Securities and Exchange Commission, when it charged Rio and two of its former top executives with fraud for allegedly inflating the value of Mozambique coal assets it bought in 2011 for $US3.7 billion ($4.65 billion) and sold three years later for $US50 million.
In the wake of the charges the company said it "intends to vigorously defend itself against these allegations". The two former Rio executives, Tom Albanese and Guy Elliott, declared they would fight the charges levelled against them.
Rio's chief financial officer, Chris Lynch, said Rio would look "very similar" to how it looks today, under its new chairman.
"I would imagine zero change in strategy, I think it's a good continuity move and I look forward to working with Simon going forward.
"He's a guy that's got a deep knowledge of the industry and he's been on the board now for a couple of years, been part of the formulation of this strategy. So I think shareholders should expect pretty much continuation of business as usual really," he said.
Investors were told that Rio plans to make $US1.5 billion in productivity improvements per year from 2021 onwards, mostly in Australia, as it increases automation, improves the utilization of trucks and trains and makes a wide range of other efficiency improvements.
The target, which senior executives say is ambitious but achievable, includes $US500 million of "productivity improvements" targeted for its iron ore operations, and a further $US500 million from aluminium operations each year from 2021 onwards.
The remaining $US500 million is expected to come from energy and minerals operations ($US350 million) and copper and diamonds ($150 million).
Assessing the iron ore market in China Rio's chief executive, Jacques said that it was undergoing a fundamental change, and that the discounts being applied to lower iron grade iron ores seemed to have become a permanent feature of the market.
"We've seen more and more evidence that the restructure in China is becoming structural," he said.
These discounts have been hurting pure-play iron ore miner Fortescue Metals Group, which sells iron ore below the 62 percent benchmark and has been getting hit by the discounts, but with about 70 percent of Rio's iron ore sales in China of its premium grade, "Pilbara Blend", the company said it has a "strategic advantage in significant markets" like China.
Jacques said Rio's "value-over-volume strategy" was working, with the company announcing $US8.2 billion of cash returns for shareholder in 2017.
New Rio Tinto chairman Simon Thompson was previously an executive director of Anglo American and chairman of Tarmac.