Rio picks veteran for chair as investors target discipline

Thompson, 58, a Rio director since 2014 and previously an executive director at Anglo American, will succeed Jan du Plessis from March 5, London-based Rio said on Monday in a statement. Du Plessis, who’s held the post since 2009, is stepping down after taking up the same position at BT Group.

The mining sector is under pressure from big investors and hedge funds to keep a tight grip on capital spending and boost shareholder returns as earnings rise, following a failed mergers and acquisitions spree sparked by the commodity boom. Thompson said that he’ll ensure Rio continues to deliver superior returns for shareholders by maintaining its capital discipline and value-over-volume approach.

Investors are likely to back Thompson’s plan to continue a cautious strategy, with many still wary of the sector’s legacy of botched M&A, including by Rio, said Adrian Prendergast, a Melbourne-based analyst at Morgans Financial, by phone. “A seemingly conservative choice is certainly going to be very positively received in our view,” he said.

Rio advanced 1.8% to A$72.46 at 10:15 in Sydney trading on Monday morning, extending gains this year to about 21%.

• READ: Rio faces fraud charges on $3.7bn Mozambique coal deal

The company, which began the hunt for a new chairperson in 2016, had to restart its search after the investor backlash against Mick Davis, the former Xstrata chief. The proposal was halted after a letter dated November 21 sent from shareholders with about 20% of Rio’s UK shares demanded a candidate who’d show discipline in allocating capital.

Ken MacKenzie, installed in September as chairperson of BHP Billiton amid an activist-investor campaign for improved performance, has flagged plans to keep a tight focus on project spending and is carrying out a review of the producer’s process to allocate capital.

Thompson is chairperson of UK buyout firm 3i Group and has also served on the boards of Newmont Mining, Tullow Oil and United Co Rusal. He will need to handle the continuing fallout from Rio’s past failed deals, including fraud charges filed by US authorities against former executives over allegations tied to coal assets acquired in Mozambique in 2011.

China slowdown

China, which accounts for about 43% of Rio’s revenue, could experience a “slowdown over the next six months, with a weakening in construction, infrastructure and automotive demand growth during that period,” Rio warned in a separate presentation on Monday to an investor forum. The producer remains optimistic on the outlook in the top commodities consumer in the medium to long term.

Rio, the second-biggest mining company, will seek to lead the industry in cash returns to shareholders and lowered guidance for 2017 capital expenditure to less than $4.5bn, from an August estimate of about $5bn, the producer said.