Who will be in charge of the world's largest iron miner? Rio Tinto (RIO.US)'s new coach revealed to have the dual genes of “mergers and acquisitions to reduce costs”

The Zhitong Finance App learned that according to two people familiar with the board's priorities, Rio Tinto (RIO.US)'s new CEO (CEO) to be announced this month not only needs to drastically improve production efficiency and implement cost cuts, but also has the courage to drive transformative mergers and acquisitions. The world's largest iron ore producer suddenly announced in May that current CEO Jakob Stausholm will step down after his four-and-a-half-year term, and is currently entering the final selection stage through internal and external selection procedures.

Two other sources familiar with the selection process said that the final candidates will make a debriefing statement to the board of directors in London this week. One of the sources said that the appointment decision could be announced in late July as soon as possible. What was previously unreported is that Chairman Dominic Barton's expectations for the new CEO are his will to promote large-scale transactions and the schedule for this board debriefing.

According to reports in May, internal candidates include Simon Trott, who has been in charge of the iron ore division since 2021, Bold Baatar, chief commercial officer, and Jerome Pecresse, head of the aluminum department. A fifth source revealed that Chief Technology Officer Mark Davies was also among the candidates. All sources requested anonymity as the selection process was confidential. Rio Tinto is scheduled to release its semi-annual report on July 30, and will not comment on this matter. Barton and the four candidates did not respond to requests for comment.

Major merger and acquisition opportunities

Since the announcement of Stausholm's departure, Barton has discussed this sudden personnel change with stakeholders.

Two people familiar with the Chairman's approach to employment said that Barton proposed to consider a “major merger and acquisition” with another mining giant if sufficient value is found. According to an insider, GLNCY.US (GLNCY.US) contacted Rio Tinto about a potential asset portfolio last year, but was unable to go further due to Stausholm's opposition. Some analysts believe that the merger with Canada's Tek.US (TECK.US) may have more synergy effects.

The new CEO will face a dual challenge: not only to strictly control costs, but also to drive the group's strategic transformation into the copper sector — demand for copper is expected to surge as the energy transition progresses.

Two people who have listened to Barton's briefing said that the company has realized that operating costs such as manpower are too high, and a person at the helm who is better at cost control is needed. Financial reports show that Rio Tinto's costs increased by 46.5% between 2020 and 2024, faster than BHP Billiton (BHP.US) and AngloD.US (NGLOD.US), which means that new leaders must strengthen capital allocation discipline.

The Royal Bank of Canada Capital Markets estimates that Rio Tinto will face $30-35 billion in capital expenditure over the next ten years, including $8-9 billion in lithium investment after Stausholm received two new projects in Chile in May. Analyst Kaan Peker said, “Although Stausholm has stated that it will focus on developing the lithium business, it is not surprising that some lithium projects make way for copper mines.”

Peker believes that the possibility of mergers and acquisitions in the short term is low because the new CEO needs to boost stock prices before getting the best conditions when exchanging shares.

Candidate competency limitations

According to a source familiar with the CEO selection process, the company is more inclined to be promoted internally. However, analysts and investors pointed out that all popular candidates have limitations in terms of operational optimization and cost reduction, and it is uncertain whether internal candidates can properly resolve issues such as safe production in Guinea and sexual harassment in Australia.

According to information, Trott led the final increase in production at the Guddidari mining area, driving iron ore shipments to a record high in 2023, and launching new replacement projects. He also addressed sensitive Aboriginal heritage issues following the destruction of the Jukan Gorge Caves in 2020.

However, since Trott took office in 2021, Rio Tinto has been Australia's most expensive iron ore producer. Ore quality declined, and the hurricane affected the lower production limit this year.

Barrenjoey analyst Glyn Lawcock said, “The past four years have been challenging. Despite a turnaround in business in 2023, the Jukan Valley incident and extreme weather made the situation extremely difficult.”

Baatar, who was in charge of Rio Tinto's copper business (including Mongolia's Oyu Tauragai mine) for three years, challenged the government relationship. Although Stausholm reached a $2.4 billion debt forgiveness restart agreement with Mongolia in 2022, Rio Tinto said last month that it was forced to revise the mining plan due to the extension of the mining license.

According to an insider familiar with the selection process, Pecresse was favored by some directors because of driving the aluminum sector's profit before interest, tax, depreciation and amortization to increase by 61% in 2024. The former head of GE's renewable energy business, who joined in October 2023, greatly expanded its global presence, but the division continued to lose money until he left office.

Davies is responsible for productivity improvement programs that help reduce costs and increase efficiency, but he only manages the smaller shipping and titanium divisions and lacks experience in major business segments.

Analysts generally believe that an external airlift is less likely. According to previous reports, Newman Mining (NEM.US) CEO Tom Palmer and former Oz Minerals CEO Brendan Harris were seen as potential external candidates.

Investors also mentioned that Sandfire Resources (SNDFY.US) CEO Brendan Harris might also be shortlisted, but he did not comment.