Rio’s new head honcho Sam Walsh has promised an “unrelenting focus on pursuing value for shareholders”, including tightening up project protocols and overall capital expenditure.
Running the Rio regime, his ethos is going to be all about discipline, focus and accountability.
Already Rio Tinto has announced an aggressive cost cutting regime after posting its first ever full year loss, announcing earlier this month it had incurred almost $3 billion in losses.
“To do this we need to run the business as owners not managers and my immediate priority is to build more focus, discipline and accountability throughout the organisation.
“Demonstrating this commitment, we will deliver our capital reduction and cost savings targets and improve performance across our business,” Walsh stated.
Adding to this is $14.4 billion in impairments, primarily relating to the company’s aluminium business acquired in 2007 through the purchase of Alcan and Mozambique coal assets bought in 2011.
Walsh was hurriedly appointed chief executive last month following Tom Albanese’s shock exit last month, which has reported to be a result of Rio’s struggling aluminium arm and its overpriced purchase of the Mozambique coal assets.
Walsh said “some poor judgements” have been made in the past but going forward the focus will be on business efficiency.
This will include the establishment of remote operation centres giving the company real-time overviews of its asset performance.
Boosting the company’s accountability is also on Walsh’s agenda.
"We must get the balance right between risk and reward in assessing new investments," Walsh told the Australian.
"We rigorously evaluate these opportunities against all competing uses for cash, including returning it to shareholders.
"Let me assure you I will not be pursuing growth for growth's sake."
The company has flagged they will improve shareholder value by selling weak assets like its aluminium and diamond businesses and more carefully allocate capital.
“It’s all about shareholder value,” he reiterated.
Despite the company’s waning results the decision was made to boost full-year dividends to US94.5c, up 3 per cent from last year.
Perpetual Investments head of equities Matt Williams said Walsh’s comments about pursuing shareholder value “were exactly what the market would be looking for”.
To date Walsh has only made a three-year commitment to Rio and the whispers have already begun regarding his replacement, William’s is backing the company’s copper head Andrew Harding as the next successor.
This aside; Walsh has received outward support from his colleagues.
“I can assure you that Sam has hit the ground running and he has already made a tangible difference to the organisation,” company chairman Jan du Plessis said.
Walsh has set a cost cutting target of $5 billion to be reached by the end of 2014; he also aims to reduce capital expenditure on both approved and sustaining projects to approximately $13 billion in 2013.
He explained that two thirds of the cost cuts would come from the company’s struggling aluminium and energy divisions, with administration, contractors and procurement costs all to be closely examined.
Some services will also be offshored and the exploration budget will be pruned as every effort is made to reduce costs.
Despite this, both Walsh and du Plessis have publically expressed their confidence for Rio’s future.
The miner’s Pilbara iron ore expansion is expected to be operational by the beginning of 2015; while the Mongolian based Oyu Tolgoi copper-gold mine’s first commercial production is scheduled for June 2013.
It was recently reported the resources giant Rio Tinto paid no mining tax in 2012, Walsh defended this saying the company was ''paying our way''.
He added that the Minerals Resource Rent Tax was intended to tax super profits, not normal profits, and the MRRT was ''operating as it was physically designed''.
Walsh stated that Rio was the highest tax payer in Australia in 2011, paying roughly $7 billion.