WA job cuts, a Glencore deal, Bold Baatar, lithium and London: the five burning issues facing Simon Trott

Unless you’ve been living under a rock, you’d be aware Rio Tinto has tapped Simon Trott to take over as chief executive from Jakob Stausholm. Rio makes about $18 billion of profit a year turning rocks into cash and come August 25 the son of Wickepin wheat farmers will formally hold the reins of this global mining behemoth. But trying to tame such a beast of a business will be no mean feat. There are five burning issues the Christ Church Grammar old boy has to grapple with in his new role. How many WA iron ore jobs need to be axed? Rio’s destruction of sacred Aboriginal caves in May 2020 drastically altered the trajectory of the miner’s Pilbara iron ore arm. Maximising short-term profitability went out the window and focus switched to rebuilding shattered relationships with Aboriginals as political pressure piled up. The heightened regulatory scrutiny caused significant delays to Rio’s new developments. Five years on, the pressure is mostly alleviated and Rio can focus on narrowing BHP’s growing margin as the Pilbara’s most efficient iron ore operator. Rio employs about 17,000 people in WA and started trimming its headcount last year. Mr Stausholm in February said more job cuts were on the way this year. How deep will those cuts be? That burden now rests on his successor’s shoulders. Strike a deal with Glencore or grow organically? Rumours have been bubbling that Rio is keen to acquire another diversified mining giant. Last year, Canada’s Teck Resources was apparently in its sights for a price of $32 billion and more recently Switzerland’s Glencore in a deal that would likely eclipse $75b. It has been speculated Mr Stausholm was forced out by the Rio board in part due to his reluctance to shake hands with Glencore. The supposed takeover target recently re-jigged its operational structure seemingly to make an acquisition more attractive for Rio. But Rio’s public messaging has so far poured cold water on a mega merger. Announcing Mr Trott’s appointment this week, Rio chair Dominic Barton said the company’s next phase “is about unlocking significant value” for shareholders from its own portfolio “driven by operational performance, and cost and financial discipline”. Is this a tactic to kill the Glencore rumours so the company becomes cheaper to buy? Or does Rio really plan to just look inward? Mr Trott by nature is an operations guy, not a corporate deal maker. Rio’s board will be throwing him into the deep end if they want him to pursue a Glencore tie-up. What to do with Bold Baatar? When Mr Stausholm’s abrupt departure was announced in May, two names kept popping up as his likely successor — Simon Trott and Bold Baatar. Many analysts tipped Mr Baatar, currently Rio’s chief commercial officer, as the favourite. Losing out on the top job to an internal rival would no doubt be a bitter pill for the Mongolian to swallow. Mr Trott now has to figure out how Mr Baatar will handle being one of his underlings. Will he be a team player? Or is he going to be nipping at his new leader’s heels knowing a huge bump in pay and prestige is in close reach if the CEO position becomes vacant again? How to rein in Jakob’s big bet on lithium? Mr Stausholm is undoubtedly a lithium bull and earmarked more than $15 billion over the past year to build up a lithium division. The counter-cyclical move is grounded in the fundamental ‘buy low, sell high’ business mantra — spend big when commodity prices are low so you can reap huge profits when, or if, prices rebound. But since Rio announced its $10 billion purchase of Arcadium Lithium in October the lithium market has deteriorated further and the long-term forecast has become increasingly bleak. Deutsche Bank analyst Liam Fitzpatrick believes Rio’s board has lost patience with the lithium bet and may want Mr Trott to start cutting some losses. He based this assessment on recent comments made by Rio’s chairman. “The tone on lithium was interesting and suggests the company is aware of concerns over low returns and over investment,” Mr Fitzpatrick this week. “Barton stated that the company does not want to invest too aggressively with a focus on picking the best opportunities and capital discipline.” A relatively easy target to put on the chopping block is the Jadar project in Serbia — a large portion of the local populace does not want the mine to exist with protests against its development drawing hundreds of thousands of people. But Mr Trott was a key figure in the birth of Jadar last decade, will he have the stomach to kill a pet project? Make Australia proud or stay true to London? Having Rio’s top brass in London makes logistical sense. It has timezone advantages over Australia and is more favourable for traversing through a global mining empire. Most importantly, many of its biggest investors are based in the English capital and the majority of its stock is listed on the London Stock Exchange. But still, Rio derives the bulk of its wealth from Australia, Perth’s skyline illustrates the significant white-collar presence it already has in country, and Mr Trott as a WA local might be tempted to not uproot his family. There’s another advantage — the political capital Rio can leverage in Australia. State and Federal politicians are very keen for Rio to move its headquarters down under. A HQ shift could put Mr Trott in the good books with decision-makers for years to come.