Rio Tinto Picks Thompson for Chairman as Investors Seek Discipline

JOHANNESBURG (Capital Markets in Africa) – Rio Tinto Group named industry veteran Simon Thompsonas chairman after shareholders rejected a plan to install a renowned dealmaker — reinforcing an industry-wide investor drive for higher returns and caution over project spending.

Thompson, 58, a Rio director since 2014 and previously an executive director at Anglo American Plc, will succeed Jan du Plessis from March 5, London-based Rio said Monday in a statement. Du Plessis, who’s held the post since 2009, is stepping down after taking up the same position at BT Group Plc.

The mining sector is under pressure from big investors and hedge funds to keep a tight grip on capital spending and boost shareholder returns as earnings rise, following a failed mergers and acquisitions spree sparked by the commodity boom around the turn of the decade. Thompson said that he’ll ensure Rio continues to deliver superior returns for shareholders by maintaining its capital discipline and value-over-volume approach.

Investors are likely to back Thompson’s plan to continue a cautious strategy, with many still wary of the sector’s legacy of botched M&A, including by Rio, Adrian Prendergast, a Melbourne-based analyst at Morgans Financial Ltd., said by phone. “A seemingly conservative choice is certainly going to be very positively received in our view,” he said.

 “We have still got a growth agenda there — but the main thing is staying focused on generation of cash and on disciplined allocation of capital,” Chief Financial Officer Chris Lynch said in a phone interview. Rio boosted investor returns this year with higher dividend payouts and share buybacks, while also carrying out an expansion of Mongolia’s Oyu Tolgoi copper mine and development of the Amrun bauxite project in Australia, he said.

The company, which began the hunt for a new chairman in 2016, had to restart its search after the investor backlash against Mick Davis, the former Xstrata Plc chief. The proposal was halted after a letter dated Nov. 21 sent from shareholders with about 20 percent of Rio’s U.K. shares demanded a candidate who’d show discipline in allocating capital.

Over at Rio’s biggest competitor, Ken MacKenzie was installed in September as chairman of BHP Billiton Ltd. amid an activist-investor campaign for improved performance. He has flagged plans to keep a tight focus on project spending and is carrying out a review of the producer’s process to allocate capital.

Thompson is chairman of U.K. buyout firm 3i Group Plc and has also served on the boards of other resources companies such as Newmont Mining Corp., Tullow Oil Plc and United Co. Rusal. He will need to handle the continuing fallout from Rio’s past failed deals, including fraud charges filed by U.S. authorities against former executives over allegations tied to coal assets acquired in Mozambique in 2011.

“We see Mr Thompson as a conservative response in the face of investor backlash to the earlier consideration of former Xstrata boss Mick Davis for the position,” Shore Capital analyst Yuen Low said. “This signals a continuation of capital discipline and emphasis on shareholder returns.”

China Slowdown
China, which accounts for about 43 percent of Rio’s revenue, could experience a “slowdown over the next six months, with a weakening in construction, infrastructure and automotive demand growth during that period,” Rio warned in a separate presentation Monday to an investor forum. The producer remains optimistic on the outlook in the top commodities consumer in the medium to long term.

Rio, the second-biggest mining company, said it will seek to lead the industry in cash returns to shareholders and lowered guidance for 2017 capital expenditure to less than $4.5 billion, from an August estimate of about $5 billion. It paid out $6.3 billion in cash returns this year, with an additional $1.9 billion buyback of its London shares to be completed by the end of 2018.

Source: Bloomberg Business News