He's not Moses, he's just a miner: Albanese departure shifts debate
With Rio Tinto writing down billions, maybe it's time for some realism in debates about "productivity", "sovereign risk", and whether miners are the Messiah. Glenn Dyer and Bernard Keane report.
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While shareholders are no doubt glad to see the end of Tom Albanese’s expensive reign at Rio Tinto, perhaps his departure can also usher in some more sensible debate in Australia about productivity, industrial relations and the quality of our business management.
Courtesy of the mining boom, our national newspapers have for a long time assumed mining companies have had access to substantial mineral deposits, and to a higher form of economic wisdom to boot. Mining magnates have been assumed to be speaking ex cathedra when they opine about sovereign risk, the mining tax, lazy workers, disruptive unions and how Australia is a “high-cost place to do business”, with fawning journalists eager to trumpet every word.
The track record of even our biggest miners in fact is little better than that of other Australian managers, one with plenty of question marks. Others have made the point too, including Queensland’s Campbell Newman. The departure of Albanese has again demonstrated that to be true.
Now, securing a high-productivity economy isn’t simply a matter of better management, any more than it is simply a matter of bringing back WorkChoices, or building mining infrastructure at taxpayers’ expense, or dumping the carbon price or mining tax. It’s a complex policy challenge, and in the end governments can only enable productivity growth. It’s up to investors, boards, management and employees to obtain it.
But that nuanced story isn’t the one we’ve been getting. For example, for much of the past three years the management and board of Rio Tinto huffed and puffed about Australia’s new mining tax, the carbon tax, rising wages, poor productivity and rising costs. Aided by newspapers, other business groups such as the Business Council of Australia, the federal opposition and conservative state governments, Rio and its mouthpieces issued warnings about the rising level of sovereign risk in Australia.
If we listened to Rio and its mates, Australia’s reputation as a place for sound investment, solid governance and stability was being threatened by the ALP, the Greens, trade unions and anyone who disputed their line. Investors would dump Australia for the mineral riches of Africa, we were repeatedly told, even as new investment in Australia smashed all previous records and independent analysts declared Australia the best destination in the world for mining investment.
And don’t forget Tony Abbott joined in the lie, declaring countries like Zambia, Botswana and Ghana were better places for investors to place their money than Australia.
But the reality was very different: Rio was its own worst enemy. It had a festering financial black hole in its balance sheet that no one could fill: the $US38 billion takeover of Alcan in 2007, followed by a new, smaller problem in the company’s much trumpeted Mozambique coal business. The Alcan debacle, with a costly assist from coal in Mozambique, has done more damage to Rio Tinto and its finances than any decision from the federal government, unions, the Greens.
Take, for instance, the carbon price. The Australian Conservation Foundation’s Charles Berger pointed out that at $23 a tonne, Rio Tinto would be paying roughly $230 million a year under the government’s scheme.
Compare that to the $35 billion in shareholder value Tom Albanese has destroyed during his nearly six-year stint as CEO, or around $5.9 billion annually. That’s $230 million a year versus $5.9 billion a year. Sovereign risk, eh?
Some analysts say Rio’s write-downs on Alcan and Mozambique Coal are “non-cash’, which they are, strictly speaking. But they also represent write-downs on balance sheet values that were established in cash transactions, such as the $US38 billion paid for Alcan (that doesn’t include Alcan’s debt and pension obligations, which are in the billions of dollars) and in the hostile bid for Riversdale Mining (which became Mozambique Coal). Just think of what Rio could have done with that cash.
But the Australian media, especially the two national dailies, plus some others such as Business Spectator, swallowed Rio’s twaddle about Australia and sovereign risk.
And those expecting the new CEO, Sam Walsh to be a “breath of fresh air”, as some claimed he would be; don’t be fooled. He’s firmly in the mould created by Albanese, Jan du Plessis and others. “Well one would hope that the Australian public would understand the importance of mining to the economy. One would hope that people could see that we’ve created a period of uncertainty. We’ve created a period where people are reviewing their projects, as certainly we are. This is not really a satisfactory way to run a country,” Walsh whined in 2010 about the first iteration of the mining tax. He won’t change his spots in London when he moves from Perth.
Under the previous chairman and board, Rio decamped for London and ignored the Howard government’s condition for approving the takeover of CRA by Rio, that the company’s head office should be in Australia. The Howard government didn’t enforce that condition or censure Rio.
Being based in London might have been nice for executives, but it meant Rio management were remote from their major profit and revenue source in the Pilbara. And Albanese and du Plessis led the way in cutting over 200 jobs from Australia last year, including closing the Sydney office (Rio has billions of dollars invested in coal mines in the Hunter Valley) and cutting more than 150 jobs in Melbourne.
Will the Rio write-downs break the spell on the national dailies, which see mining executives as not much less than Moses bringing the word of God down from the mountain, or will we continue to get the same line from them, that there’s nothing wrong in mining that a return to WorkChoices and an anti-union war wouldn’t fix?
And how long before investors start being sceptical? Much of the money they invested in Rio is the superannuation savings of millions of Australians. This is no esoteric argument: Rio Tinto and its management have blown up billions of dollars of our savings. That is a far worse outcome for Australia than the impact of the mining or carbon tax on Rio.