BREAKINGVIEWS-Rio CEO exit hands successor strategic quandaries

By Karen Kwok

LONDON, May 22 (Reuters Breakingviews) - Rio Tinto RIO.L, RIO.AX Chief Executive Jakob Stausholm is handing over more baggage than freedom. In a surprise announcement on Thursday, the $107 billion miner said its Danish CEO would step down after just over four years in the role. While he leaves behind a less scandal-prone and complex company, his successor will still have to grapple with several unresolved constraints.

Stausholm took the reins in January 2021, steadying the ship after the Juukan Gorge scandal in Australia toppled predecessor Jean-Sébastien Jacques. In 2022, he resolved a long-running dispute with the Mongolian government over copper mine Oyu Tolgoi. Rio's London-listed shares have delivered a total return of 30% under his watch.

The next CEO will still have work to do. JPMorgan reckons Rio shares could be worth as much as 95% more than the current price, if valued in line with its sum of the parts calculation. And around 70% of the group’s EBITDA in 2024 came from iron ore, underscoring the need to diversify.

Stausholm’s chosen future green-metal solution was lithium, unlike peers BHP BHP.AX, which targeted more scarce metals like copper. It’s a risky bet. Lithium prices have slumped due to abundant reserves and cheap Chinese supply, with prices down 13% year-to-date, per Morgan Stanley. Despite those doubts, Rio pushed ahead: in October it paid $6.7 billion for Arcadium Lithium, equivalent to a toppy 90% premium, and this month it took a stake in a yet-to-develop Chilean lithium mine.

These were all cash deals, highlighting another constraint: Rio’s dual listing structure, with stock issued by both British and Australian entities, can make share-based acquisitions more complex. Activist fund Palliser Capital recently proposed scrapping it, although the motion was defeated in a shareholder vote.

The new CEO, then, will already face some tough choices. Lithium remains a modest contributor, expected to account for just 6.5% of group EBITDA by 2034, per Visible Alpha. Yet sticking with the strategy, while managing the rigidity of a dual listing, could make it harder for the next chief executive to pursue major deals. They will be taking over at a time when a number of potential targets are easier to swallow: Teck Resources TECKb.TO and Anglo American AAL.L are now worth $18 billion and $38 billion, with their shares down 34% and 20% respectively since last May.

There are some good candidates for the top job, whether internal contenders like Chief Commercial Officer Bold Baatar or iron ore boss Simon Trott, or external executives such as Newmont’s NEM.N CEO Tom Palmer, a Rio alum, or even Jonathan Price of Teck. Whoever prevails will find there are few easy seams to mine.

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CONTEXT NEWS

Rio Tinto CEO Jakob Stausholm will step down later this year, the London-listed miner said on May 22, adding that a selection process for his successor is underway.

Stausholm took over as CEO in 2021 from Jean-Sébastien Jacques who was ousted as a result of Rio grappling with legal, public and investor angst over the destruction of the 46,000-year-old Juukan Gorge rock shelters. He will continue at the helm of the firm until a new chief is appointed.

Rio’s London-listed stock was down 0.1% as of 0812 GMT on May 22.