Case Study Of Rio Tinto Mining Company Management Essay

Rio Tinto, the leading global mining group headquartered in the UK, is a combination of Rio Tinto plc, a London listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange. The history of this corporation dates back from 1905 by the appearance of Consolidated Zinc Corporation with operation in Broken Hill, New South Wales (Australia). After a lot of changes, in 1962, two corporations were formed at the same time: the Rio Tinto-Zinc Corporation (RTZ) and the CRA Limited. RTZ came into being due to a merger between British owned The Rio Tinto Company and The Australian Consolidated Zinc Corporation while the CRA Limited .(formerly Conzinc Riotinto of Australia Limited) was formed by a mixture of the Australian interests of The Consolidated Zinc Corporation and The Rio Tinto Company. From December 1995, RTZ and CRA were unified as a dual listed company (DLC). Rio Tinto is formed. And 2 years later, in 1997, the RTZ Corporation PLC changed the name to Rio Tinto plc and CRA Limited to Rio Tinto Limited. Rio Tinto began to be called as Rio Tinto plc (UK) and Rio Tinto Limited (Australia). Since then, many more businesses were made and developed. And then, in 2007, this corporation became the global leader in aluminium after Alcan Inc acquisition – the Canadian aluminium producer by a bid of US$38 million.

CORE BUSINESS

Major products

Rio Tinto’s business is finding, mining, and processing mineral resources, supplying important minerals and metals in order to meet globally increasing needs and contribute to living standards improvements.

Rio Tinto’s activities are all over the world but are majorly represented in Australia and North America. Its significant businesses are in South America, Asia, Europe and southern Africa. And, they have five main product groups include: iron ore, copper, aluminium, diamonds & minerals and energy together with two support groups: Technology & Innovation and Exploration. (see the exhibit 1 below). And, and a variety of other metals and minerals, including nickel, potash, lead and zinc, many of which are by products of other key operations in iron ore, copper, energy, industrial minerals, aluminium and diamonds.

Iron ore – Business generates the most revenue

Among many businesses, iron ore – the key ingredient in the production of steel, one of the most important and durable products for modern day living – brings the most revenue to Rio Tinto. In 2008, iron ore got revenue of US$ 16,527 million (28%). This figure downs to US $12,598 million (29 %) in 2009 due to global crisis leading the reduction in iron ore demands. And then, Rio Tinto recovers and achieves a big number at around US $25 million in 2010 owing to the quarterly pricing together with the record annual production of 239 ton. This reflects the common trend of global economy after the downturn.

Iron ore – Business generates the most profit

With the high and stable underlying EBITDA and underlying earnings, iron ore is also the business generating the most profit. In 2008, Rio Tinto iron ore achieved US$ 10,212 million of EBITDA (43%) and US$ 6,017 million of underlying earnings (58%). In 2009, US$ 7,112 million (49%) and US$ 4,126 million (66%) are underlying EBITDA and earnings respectively. And, due to the new pricing method – the quarterly pricing, the year 2010 witnesses the sharp increase in profit at around US$ 17 million of EBITDA (65%) and around US$ 10 million of earnings (71%).

Iron ore – Business will drive growth in the next decade

After the collapse of joint-venture with BHP Billiton in October 2010, Rio Tinto announced plans to invest US$ 3.1 billion to expand iron ore mining in the mines in Australia to raise its total output of iron ore at 239 million tons / year (Source: Riotinto.com/4th quarter 2010) up to 283 million tons / year in 2013. Rio Tinto is the World second largest in iron ore, just behind Vale of Brazil. In addition, with the target of “the mine of the future”, Rio Tinto’s Technology & Innovation group has made a lot of investments in Tier 1 ore bodies so that Rio Tinto can meet the increasing demands of various customers in emerging as well as developed countries in the world. As a result, iron ore will surely drive growth of Rio Tinto the next decade. We can see the growth of iron ore rather highly and stably by exhibit 4 below.

How successful Rio Tinto has been since 2007?

Since 2007, Rio Tinto has been quite successful in profit when continuously accessed to good underlying EBITDA and underlying earnings. This is shown by the exhibit 5.

Some achievements in environment stewardship, social well-being and economic prosperity through “the way we work” approach are Rio Tinto’s success, too.

However, beside some affairs, bids helping maintaining and enhancing the company’s reputation during the time, Rio Tinto has not really successful when the governance demonstrates to be indecisive and embarrassed in the investment strategies creating the waste of time as well as money. After the Canadian Alcan acquisition (US$ 38.1 billion) in 2007, Rio Tinto became the global leader in Aluminum. But, Aluminium business does not bring much profit to this company. Also, the compensation of US$195 millions when canceling the contract with Chinalco or the collapse of BHP Billiton – Rio Tinto joint venture in October of 2010 is the illustration. Clearly, Rio Tinto could have been more successful if having the more effective governance system, especially during the time of global crisis to be compatible with its scale and potentials.

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CORPORATE SOCIAL RESPONSIBILITY (CSR)

Rio Tinto has strongly responded to the increasing demands of society for greater corporate responsibility, to the challenge of sustainability and climate change. This is cited by “Rio Tinto has been a decade-long journey that demonstrates the Group’s seriousness, through its desire to learn from different partnerships, in taking responsible actions. Its approach goes beyond compliance and its partnerships approach has gone from sponsorship to corporate partnerships that bring value to each partner by harnessing positively the synergy and commonality they have”. (Rio Tinto, 2006)

Rio Tinto has made a strategic commitment to sustainable development (environmental stewardship, social wellbeing, economic prosperity and governance systems). It is corporate policy that group businesses, projects, operations and products should contribute constructively to the global transition to sustainable development.

In operations, they try their best to use effectively the natural resources, minimize bad affects on sources of land, water, biodiversity…as well as limit Greenhouse gas emissions, energy by using a significant portfolio of hydro, nuclear and other renewable power sources in its energy mix. Hence, in 2009, 70 per cent of used electricity was from low carbon sources, mainly hydro. In 2008, approach to biodiversity management in the littoral forests of Madagascar was regarded as leading practice, or several investments in lower emissions and energy efficient technologies are made…

For social wellbeing, they focus on safety, health, people, assurance and community engagement and regional economic development…About economic prosperity, Rio Tinto have policies of global operations, supply chains, bringing a lot of positive results. And especially, Rio Tinto also has the governance systems reaffirming their commitment to corporate responsibility through “the way we work” – global code of conduct relaunched on 9 December 2009. These are demonstrated by business integrity, human rights, stakeholder engagement or closure policies. Rio Tinto also focuses on “non managed operations”. Escondida copper mine in Chile, the Grasberg copper-gold mine in Indonesia, and the Oyu Tolgoi copper project in Mongolia are some examples.

“Stakeholder engagement is a key aspect of corporate social responsibility because it enables a shared understanding of a company’s impacts with its stakeholders and the company” (Rio Tinto, 2006)

Rio Tinto’s external engagement activities are clearly and at local, national, regional or international levels. Rio Tinto “actively supports responsible practices from mine to retail. Rio Tinto is a founding member of the Responsible Jewellery Council which commits members to promote responsible business practices in a transparent and accountable manner throughout the industry from mine to retail” (riotinto.com) or they engage with investors through the chairman, the chief executive and the finance director; or, the senior independent director and other non executive directors are also available as appropriate…

These factors make Rio Tinto different from its competitors and contribute to its goal of being the undisputed sector leader in maximizing value for their stakeholders

MAJOR ISSUES MANAGEMENT

In November 2007, Rio Tinto acquired the Canadian aluminum producer Alcan Inc. (for US$ 38.1 billion in cash), resulting in the appearance of Rio Tinto Alcan. By this, Rio Tinto became the global leader in the Aluminium industry together with a debt of over US$ 38 billion.

And, the global crisis in 2008, making the price of steel, iron ore…sharply decreased, the company stock price roughly down to US$ 26.31 only (Huynh Hoa, 2009) causing the lack of cash as well as debts increased wheas in June 2009, the contract cancellation with Chinalco, requiring a compensation of US$195 millions of the contract value of US $19.5 billions.

And then, in July 2009, 4 staffs (including General Director) were arrested in Shanghai and accused of bribery receipt and stealing of business secret. So, in March 2010 they were convicted of 7-14 years and fined more than US$ 1.000.000 in total.

And, the last issues facing Rio Tinto is, in October 2010, BHP Billiton – Rio Tinto joint venture collapsed leading the slight stock price deduction. This is the joint venture iron ore mining in Western Australia. However, this venture was collapsed due to strongly protest by the European Commission, Japan, Korea, Australia and China…

However, Rio Tinto, by the effective corporate governance, step by step faced these issues and looked for the ways to solve them.

Firstly, in order to settle the debt of over US$ 38 billion, Rio Tinto signed a contract of US$ 19.5 billions with Chinalco on February 12, 2009. However, this contract was finally cancelled by a compensation of US$195 million. At that time, they thought of the establishment of a joint venture iron ore production in Western Australia with BHP Billiton, along with the issuance of stock options as the best solution when market navigated more positively than expected. Rio Tinto’s share price at the Sydney market increased 9.9% to US$ 59.8 per share. Rio Tinto has chosen method of raising capital through issuing shares to existing shareholders, with the estimate to obtain US$ 15.2 billion. In addition, the group would get US$ 5.8 billion dollars from BHP Billiton for joint venture. But at the end, this venture did not succeed – the collapse in October 2010. Nevertheless, Rio Tinto did not feel sad or regret at all. Beside the forecast of the strong protest received, the global market had the good signals of recovery, iron ore prices have shot up again. The business situation improved a lot, creating a lot of opportunities for Rio Tinto. As a result, shortly thereafter, Rio Tinto announced plans to invest US$ 3.1 billion to expand iron ore mining in the mines in Australia to raise its total output of iron ore at 239 million tons now up to 283 million tons year in 2013.

Solving the problem of 4 staffs in China is the Rio Tinto’s withdrawal of all of their staffs from China with of much disapproval about the Chinese decisions by keeping a secret trial process and the thought of the “not transparent” and “too heavy” verdict, concluding a valuable lesson of doing business in China.

STRATEGY

Rio Tinto’s website demonstrates “strategy is to invest in and operate large, long term, cost competitive mines and businesses, driven not by choice of commodity but rather by the quality of each opportunity”. With the policies, the performances and “The way we work” in an ethical & socially responsible manner orienting to the sustainable development, social wellbeing, environmental stewardship and economic prosperity are focused within their strong governance systems.

Markets Rio Tinto has focused on

Australia, North America and Europe are Rio Tinto’s strong representation and South America, Asia, and southern Africa are locations where they have significant businesses. With the strategy of competitive cost, Rio Tinto’s operations are suitable with some emerging markets like China, India…as well as other markets like USA, Japan, Australia…They produce Aluminium in Europe and the Middle East, mine copper in South Africa, uranium is mined in Namibia and, ilmenite in Madagascar. Home to core iron ore and metallurgical coal businesses is Australia where to produce bauxite, alumina, uranium, copper, talc and salt. Meanwhile, Canada is place for producing aluminium, diamonds, iron ore and titanium dioxide feedstock. Moreover, thermal coal, copper, borates and talc are produced in the US. Also, Rio Tinto has an own of 30 per cent of Escondida – the world’s largest copper mine, in Chile and they are developing La Granja copper project in Peru by wholly owned.

Core strengths

Rio Tinto has a strong reputation for operational excellence and sustainable development. The reputation is of a leading global mining group, the global leader in Aluminium industry and the world second largest iron ore corporation. In mining industry, the business scale and size are very important. Hence, this reputation gives them the license to operate, uphold it and build upon it.

Besides, their big assets in Europe, Australia, South America, North America, Asia, and Southern Africa together with the reputation give Rio Tinto the capabilities to operate and grow business on a global scale; as a result, they have the scope and expertise for contributing to local communities’ long term benefits and host countries’ development.

Innovation

Technology & Innovation is one of seven business groups of Rio Tinto. Rio Tinto defines “Technology & Innovation group being responsible for different areas of mine technology, including mining, asset management and strategic production planning tends to business improvement in the areas of mining, processing, asset management and strategic production planning”.

Rio Tinto develops the ore bodies of the future, creating further competitive advantage by VK1TM – Tier 1 Ore bodies, the large and low cost ore bodies is an illustration of Rio Tinto’s step-change innovation.

Moreover, Rio Tinto Alcan’s AP smelting technology considered the world’s benchmark technology in aluminium industry is at the lowest emission level, bringing the safety, energy efficiency. All result in the contribution to sustainable development.

But, it is clear that, Rio Tinto, by its own capacity and condition, can absolutely go further in innovation if this company makes more efficient investments in hi-tech areas (solar energy, wind energy…) improving environment, minimising pollution, preserving resources. Simply because eenvironmental protection is to protect the source of life, prolong survival and maintain the development of the company.

VISION, MISSION, GOALS

Vision

Rio Tinto declares the vision by “tends to be the global mining leader with maintaining or achieving sector leadership, including operational excellence, sustainable development, exploration and innovation”. (Riotinto.com)

With a variety of business, product groups all over the world; a huge asset system in Australia, North America, Europe, South America, Asia, and Southern Africa as well as expertise in technology & innovation, together with a long-term reputation, Rio Tinto is absolutely able to carry out the operations in a global scale, meeting the needs of various customers in developed and emerging countries. In addition, in every activity, Rio Tinto always regards the social responsibility as the centre. They have “the way we work” approach in order to focus on environment stewardship, economic prosperity, social well-being & governance system helping to achieve the sustainable development.

Mission

Rio Tinto’s mission is to be the resources company of choice.

The approach “the way we work” is effective to all of activities, operations even the non-managed operations. All staffs understand this and apply to their daily work. This creates the consistent principles and policies for all of the groups in accordance with Rio Tinto global criteria on people, environment, society… ensuring the sustainable development.

(Riotinto, 2006)

Goals

Rio Tinto asserts its objective by “to maximize total shareholder return by sustainably finding, developing, mining and processing natural resources”.

With the belief of continually driving performance improvement and managing risk through setting targets of sustainable development, there are some principles used in their operations:

Internal performance in accordance with external drivers.

The nature of our business.

Transparency, Accountability, Fairness, Responsibility and Consistency. 

Realistic achievement with a suitable stretch, in governance system

Because they think that only with sustainable development, their business will be stable forever and of course, corporate value will be enhanced resulting in the maximal shareholder return.

(see more at http://www.riotinto.com/ourapproach/17212_goals_targets_17828.asp)

How to motivate the employees

Rio Tinto respects their employees and put them at the heart of their operations. At Rio Tinto, the accountability, respect, teamwork and integrity are highly appreciated. Employees are working on the base of job requirements. There is no discrimination of age, ethnic or social origin, gender, sexual orientation, politics or religion here. Only exceptions are made to favor local employment where local laws provide. The employees are working in safe and healthy environment. Rio Tinto regularly organizes the training courses to develop employees’ skills, potentials and competencies, offering professional development opportunities within the Group. Besides these, Rio Tinto provides employees with an independent and confidential means of reporting concerns and communicating ideas to senior managers through the Speak-out programme.

DESIRABILITY AS AN EMPLOYEE

Through the research, I myself realize that Rio Tinto is a good company leading in finding, mining and processing the Earth’s mineral resources. We can not deny the fact that Rio Tinto is a big corporation with many chains of projects; obviously the business has been successful with high and stable revenue and profit. A prosperous environment which attracts a lot of employees! Also, Rio Tinto pays attention and focuses on social responsibility. They have the policies of encouraging the innovation by building an innovation team. Sustainable development is always at the heart of their operations. Being a Vietnamese person, I do hope to be an employee of this company. I like the experiences, especially in a different and professional working environment to broaden my horizon. Rio Tinto with the good policy of employees and career regimes that provide many opportunities of training and promotion. Therefore, a foreign corporation like Rio Tinto will be most suitable with my dream.

Word count: 3,040 (incl. Overview)