Is Rio on the rocks?

by Roger Moody

Despite recent disposals, in order to cover its massive debt, Rio Tinto’s prospects for selling more of the family silver (or copper, or nickel, or aluminium) look increasingly dim. Last year, its plan to sell off US$10 billion of assets fell on sterile ground – raising only just over a quarter of the target figure.

So now the company is mooting an equity (share) issue, hoping the “market” will bite. The market’s response to this prospect was demonstrated early  today, when Rio’s shares fell by 8% in the early hours, recovering only slightly a few hours later.

Whether a vast new shares’ issue will work depends on several factors; including timing, perceptions of the length and severity of the current “recession”, and just what the company may be willing to get rid of next.

It’s clearly got to demonstrate that it has a clear, prudent fiscal strategy and will be left with projects that have a viable future. Confidence in Rio’s ability to do precisely that has been severely eroded under the aegis of CEO, Tom Albanese, over the past two years.

Although currently a shell of its former self in broad financial terms (its market capitalisation today being less  than half what it was a few months back), Rio Tinto is still the world’s biggest titanium producer, one of its biggest coal producers, and number 2 among iron ore companies.

The company is far from “squeaky clean”, with regard to  adverse social impacts from these three sectors (eg. with its Madagascar titanium project, its planned Simandou iron ore mine in Guinea, its Corumba iron ore project in Brazil and, of course, its GGE contributions from coal). Nonetheless  a Reformed Rio which concentrated on titanium and iron, while cutting back on the black stuff,  could render it not only more viable, but also more environmentally and socially responsible.

But Rio’s key problem is its “hubris” – something identified in the early years of Partizans’ campaigning as a trait that would one day see the company’s downfall.  To forsake gold, copper and uranium – while also dispensing with its greed for bauxite and uranium and, more recently, phosphates, would strike faith and hope (if not charity) into the hearts of many of its critics.

And the only way that’s likely to happen is through a change in corporate mentality, equivalent to a course of ECT – if not a lobotomy.

Could the “market”  deliver such a radical,  surgical shock? However unlikely that may seem, it will certainly be impossible unless accompanied by  re-invigorated and concerted, ethically-based campaigning. Aimed at putative investors (not least pension funds) such a campaign must be rooted both in the history, and contemporary collective experience, of how this uniquely  damaging mining company has built its toxic edifices and continues to operate.

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