Yet another senior Frenchman lost his head to the populace. That Mr JS Jacques’ undoing came from the Australian outback reaction to corporate arrogance is merely a side reflection of a flatter planet. The inability of top managers to listen to the ground vibrations is really the point. We do not address here the specifics of the heritage cave blasts by Rio miners nor the (slow) governance adjustments but the market reaction: Rio, an £81bn behemoth, has gained about 7% on the news over the last week.
This can be understood as the vibrations post that blast were increasingly nasty so that it is a relief for shareholders to put an end to this destructive concern about Rio’s reputation. The surprising development is the parallel rise of Anglo, Glencore and BHP. It could be construed as those firms’ valuations piggy-backing on the surge of Rio. It may be more.
As this surge is only concentrated on sector mega miners, the AlphaValue mining analyst had another more interesting angle: the ‘mercato’ of senior managers amongst miners. Here we go.
In light of JS Jacques’ departure from Rio, there are two questions which need deliberating:
Who could emerge as Rio’s next CEO?
Given the gravity of the internal crisis, the chances of an internal candidate being elevated for the top job are pretty grim. The first external name that comes to our mind is Mark Cutifani – who, apart from delivering a staggering turnaround at Anglo, has previously also worked at Vale and Rio. Given the prevalent challenges at Anglo (ranging from unaddressed issues in South Africa to growing headwinds in diamonds and coal), he would prefer Rio any day. And, being an Australian, he perhaps would be able to strike a chord and quickly win the confidence of locals (and shareholders) – which fell to record lows post the heritage cave blasts. However, his only downside would be his age, i.e. 62 years, implying a fairly short tenure. According to media reports, there are (ex.) Australian mining / oil & gas executives from firms like Fortescue and Shell (Buy, UK) who could also be considered for the job.
If Rio manages to poach Mr Cutifani, Anglo would have a tough time finding someone who can manage the (asset and geographic) diversity at hand, especially in COVID-19 times.
What could be JS Jacques’ next destination?
Well, it would be too early to say where (48-year old) JS could be headed for but there is no denial of the fact that head-hunters now have one promising candidate on their list. JS’s departure has definitely opened one option for Ivan Glasenberg at Glencore – who for many months/years has been scouting for a worthy successor. Remember, even after Glencore’s trading stalwart exited the firm, the trader-miner continued to generate exceptional trading profits – also capitalising on COVID-19-induced volatility. However, the firm struggled in its industrial, i.e. mining, arm and JS’s appointment could well be the panacea to all problems. It’s a well-known fact that JS is accredited with transforming Rio’s ‘mining’ fortunes – both from an asset and return perspective, and having him on board as CEO / co-CEO – with a split between trading and mining, Ivan Glasenberg might pull off yet another masterstroke.
As a reminder, BHP has a new boss since 2020.
Mining leadership could get interesting in the coming months. It remains to be seen, obviously, whether these managers will pay more attention to their stakeholders in the future. Hopefully, Rio’s board has opened a new era in that respect.
Big miners’ valuation essentials
On a separate note, there are media reports suggesting strong calls from Canberra for pushing for the appointment of an Australian as Rio’s next CEO. While the March 2021 elections in Western Australia could have a driving factor, another strong reason could be the escalating diplomatic tensions between Australia and China. Remember, Chinalco (Chinese state-owned aluminium giant) is Rio’s largest shareholder (c.14% stake), and this Australian tactic could be a way to thwart Chinese ownership dominance in an Australian crown jewel.
Interestingly, Australian iron ore (typically higher-grade) is important for Chinese (zombie) steel mills – given the priority of emission controls and, hence, the battle for Rio’s control could be a closely contested one. Although, it’s ironical that the reason (i.e. ‘ESG’) why Mr Jacques was forced to quit may remain a (perennial) concern, given the huge political interests at stake.
Founded in 2007, AlphaValue is the world’s leading provider of Independent European Equity and Credit Research. We provide comprehensive, unconflicted research-only (no execution, no corporate finance) coverage of c. 480 European mid and large cap stocks. We have an average of 46% of negative recommendations at any one time. Learn more at www.alphavalue.com