5:42 a.m. | Updated
LONDON — Two expensive acquisitions have come at a steep price for Rio Tinto, the Anglo-Australian mining giant.
The company, the world’s second-largest mining company after BHP Billiton, said on Thursday that it was taking a $14 billion write-down on the value of aluminum and coal mining assets — a huge amount that came as a surprise to some analysts and investors.
As a result, the company’s chief executive, Tom Albanese, resigned after five years in the top post. The company quickly named Sam Walsh, head of the iron ore unit, as its new chief.
The write-down is a significant blow for Rio Tinto, which once looked poised to capitalize on a global economic boom. Analysts said that the size of the write-downs signaled just how much the company had misjudged the values of the acquisitions, one of which happened as recently as two years ago.
“The level of the write-down is very disappointing, and it does come as a surprise,” said Keith Bowman, an analyst at Hargreaves Lansdown. “There have been some rash takeovers in the mining industry, and I hope this continues to prove a lesson.”
The write-downs are linked to two of Rio Tinto’s biggest acquisitions in recent years: Alcan, an aluminum producer based in Canada, and the coal producer Riversdale Mining, which is based in Australia and manages mines in Africa.
The company blamed falling aluminum prices for $10 billion to $11 billion of the charge. Most of Rio Tinto’s aluminum assets stem from its $38 billion acquisition of Alcan, a deal that was led by Mr. Albanese.
The acquisition of Alcan was part of a multibillion-dollar takeover frenzy in the mining industry at the time. It was driven by soaring metal prices, and it led to Rio Tinto itself becoming a target in what would have been one of the biggest takeovers in history. In the end, Rio Tinto rejected the offer, by BHP Billiton, as too low.
Rio Tinto successfully outbid the American aluminum giant Alcoa to acquire Alcan in 2007. Rio Tinto seized on the merger, hoping to take advantage of rising metal prices on the back of a booming Chinese economy. But then global economic growth slowed, and demand for aluminum dropped quickly.
“In hindsight, it was a bad call,” said Richard Knights, an analyst at Liberum Capital. “But it was a different environment back then.”
The acquisition of Alcan in particular has weighed heavily on Rio Tinto’s performance. Mr. Albanese acknowledged last year that the company had paid a high price for the deal and he had repeatedly come under pressure to resign after the Alcan takeover had burdened Rio Tinto with debt.
Last year, Mr. Albanese decided to forgo his bonus after the company reported a 59 percent drop in 2011 earnings because it wrote down $8.9 billion on the value of Alcan assets.
“We are also deeply disappointed to have to take a further substantial write-down in our aluminum businesses, albeit in an industry that continues to experience significant adverse changes globally,” Jan du Plessis, Rio Tinto’s chairman, said in a statement.
About $3 billion of the $14 billion write-down was related to lowered estimates of the value of its coal business in Mozambique after the company failed to secure crucial government approvals to ship coal it mined in the African country.
Rio Tinto also overestimated how much coking coal it could recover there. Rio Tinto bought Riversdale Mining for around $4 billion in 2011 after increasing its offer price to resolve a standoff with Riversdale’s shareholders.
Mr. du Plessis said in the statement that the scale of the write-down related to the assets in Mozambique was “unacceptable.”
Rio Tinto cited strong currencies and high energy and raw material costs as other factors leading to the write-down.
Doug Ritchie, a Rio Tinto executive who led the purchase of coal assets in Mozambique two years ago, also stepped down on Thursday.
Rio Tinto’s shares fell about 1 percent in trading in London on Thursday. The company’s shares have dropped 6 percent in the last 12 months, even as the stock price of its competitor BHP Billiton increased 0.8 percent in the same period.
Mr. Albanese said in the company’s statement that he fully recognized “that accountability for all aspects of the business rests with the C.E.O.”
Mr. Albanese will stay on until July 16 to help with the transition. He will not receive a bonus for this year and any outstanding remuneration in the form of deferred stock bonuses would lapse, Rio Tinto said.
DealBook: Rio Tinto to Book $14 Billion Charge; C.E.O. Replaced
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DealBook: Rio Tinto to Book $14 Billion Charge; C.E.O. Replaced
