By Clara Denina, Ernest Scheyder and Melanie Burton
(Reuters) -Rio Tinto’s board and Jakob Stausholm agreed to part ways last week amid mounting concerns the CEO was reluctant to follow board priorities, including focusing on costs, after years of expansions in lithium, copper and iron ore, three sources said.
Rio, the world’s second-largest listed mining company, surprised investors last week by announcing Stausholm would step down later this year when a successor is appointed.
No reason for Stausholm’s exit was given, and sources said it was not tied to any scandal. The CEO had as recently as two weeks ago given no indication of his departure at a major industry conference in Spain, according to three sources who attended.
Reuters spoke with six people who were familiar with board considerations, or who had been briefed on them, or briefed by management. They agreed to speak on condition of anonymity to discuss sensitive internal matters or private conversations.
Rio Tinto declined to comment for this story, while Stausholm did not respond to requests for comment.
Stausholm took the helm at Rio in 2021 at a low point in the company’s history after his predecessor was sacked. The Dane started his tenure with a listening tour of the company’s global portfolio, which stretches across every continent but Antarctica.
He led a turnaround in the miner’s fortunes by resetting relationships in Guinea and Mongolia to bring its next wave of iron ore and copper projects online. Stausholm also inked three major lithium deals in the past year.
As his successes mounted, one source said Stausholm became more likely to push back on board suggestions and too quickly dismissed opportunities the board felt could have been better explored.
One of those opportunities included Stausholm’s rejection of an approach by Glencore executives last year seeking a potential merger, according to a person familiar with the matter.
Another related to reviewing options around the stake of its largest UK shareholder Chinalco, which came up with investor pressure for the miner to review its dual Anglo-Australian share market listing, said the first source.
While the board backed Stausholm’s investments and strategic decisions, it held concerns that rising costs had to be dealt with now rather than in a few years’ time, two of the sources said.
Rio’s average headcount has climbed by 22% to around 60,000 people since Stausholm’s appointment in 2021, according to its most recent annual report. Meanwhile, revenue has dropped more than $10 billion over that time, with prices of its key profit generator, iron ore, expected to fall further in coming years.
The board told Stausholm that he must put more focus on cost cuts and operational excellence, but he was resistant and they decided to part ways, three of the sources said.
“Nothing else changes. The board is happy with the growth options, they are happy with lithium, the strategy is the same,” one source said.
DOUBLING DOWN
Some investors criticised Rio for overspending on its $6.7 billion buy of lithium miner Arcadium after a plunge in prices for the battery metal. That deal was followed by more than $1 billion more in spending on two projects in Chile earlier this month.
With the lithium market in the doldrums, it will take years to know whether Stausholm’s bet will have paid off, although demand projections for the metal are strong into the next decade.
Rio’s lithium joint venture with Codelco “aligned with its growth and value creation strategy,” Goldman Sachs, which has a “buy” recommendation on the stock, said last week.
Rio investor Pendal Group has raised concerns about additional staffing costs at both Rio and larger rival BHP, said Pendal investment analyst Jack Gabb. As recently as February, Stausholm said that costs “hadn’t been a focus,” Gabb said.
Rio’s ballooning costs had been flagged internally for some time, including at a recent executive retreat in Australia by CFO Peter Cunningham, a source with direct knowledge said.
Despite those warnings, Stausholm saw himself as a strategic leader rather than a cost-cutter, with the board increasingly preferring the latter, the person added.
“Rio’s got amazing assets, but a bloated bureaucracy, full of people looking for work to do. That’s just not sustainable,” the person said.
Of Rio’s internal bench of potential successors, iron ore head Simon Trott, Chief Commercial Officer Bold Baatar, and aluminum division boss Jerome Pecresse are seen as potential replacements, all of the sources said.
Pecresse may have an advantage given his management style focused on cost-cutting, one of the sources said.
“Rio doesn’t need another visionary right now,” the source added.
(Reporting by Clara Denina, Ernest Scheyder and Melanie Burton. Editing by Veronica Brown and Lincoln Feast.)
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