It’s been quite a day for Rio Tinto (RIO), the world’s second-largest mining company. This morning it announced $14 billion in write-downs related to aluminum, coal and smaller assets and the immediate resignation of its CEO Tom Albanese.
But what’s surprising at first glance is that the news seems to have done little to either cheer or scare investors, and the stock was down just 0.5% today.
There’s a story to this story: Rio Tinto’s stock has taken its licks recently, and was down about 5% this month even before today’s news; it’s also had a bumpy 12 months:
FactSet(Click for larger image.)
Rio’s also already pretty cheap compared to its rivals, trading at about 9 times forward earnings while BHP Billiton (BHP) trades at about 13 times and Anglo American, the world’s biggest mining company, trades at about 12 times earnings.
And while a $14 billion write-down is pretty eye-watering, the charges were not unforeseen — most of the loss is related to its acquisition of aluminum company Alcan — and when you compare the $38 billion it paid in 2007 for Alcan to today’s $21 billion enterprise value for aluminum firm Alcoa (AA), you can see why investors weren’t shocked.
As for Albanese’s sudden departure, as Robb Stewart writes, owning a mining company comes with accepting leadership turmoil these days:
His resignation is one of several recently among chief executives at the world’s biggest mining companies. Anglo American’s Cynthia Carroll soon will be succeeded by Mark Cutifani, who is head of South Africa’s AngloGold Ashanti. BHP Billiton is seeking a successor for Marius Kloppers, although no time frame for his departure has been disclosed. And Mick Davis is preparing to leave Xstrata, following its merger with Glencore International.
Here’s some additional insight from our corporate cousins at The Wall Street Journal
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