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Sam Walsh, chief executive officer, Rio Tinto. (ANTHONY JENKINS FOR THE GLOBE AND MAIL)
Sam Walsh, chief executive officer, Rio Tinto. (ANTHONY JENKINS FOR THE GLOBE AND MAIL)

THE LUNCH

Eggs Benny with the man who led the counter-revolution at Rio Tinto Add to ...

In the 1980s, he led the team that overhauled GM Australia from top to bottom. “We had similar issues that Detroit had in more recent times – huge debt, lost market share, overcapacity, you name it,” he says. “I restructured the company. At the time it was a big deal, and Nissan headhunted me.”

His success in running Nissan’s Australian manufacturing arm put Mr. Walsh on Rio’s radar screen. The mining company hired him to run, and eventually unload, its foundries. He shot up through the ranks to become the head of its aluminum division and was promoted to the Rio’s showpiece business – iron ore – where Rio ranks second globally, behind Brazil’s Vale SA, and whose assets include Iron Ore of Canada. Thanks to strong sales and prices, iron ore has been Rio’s saviour. Last year, the division accounted for almost all of the company’s underlying earnings (which exclude writedowns) of $9.3-billion (U.S.).

Mr. Walsh knew exactly what he had to do when he was appointed CEO: Focus on shareholder returns, not size.

“We had all ended up chasing growth bubbles, some were real, some were imaginary,” Mr. Walsh said. “Now we’re going to go back to the future, back to the former strengths of Rio. It was one of the best companies in [mergers and acquisitions] and became one of the worst in the recent past.”

Rio’s bubble chase was, relatively speaking, more deluded than those of BHP Billiton, Anglo American, Vale and Xstrata (now Glencore Xstrata), its main rivals. For that, Rio can blame the top-of-the-market Alcan takeover. Its purchase was based on the belief that aluminum’s rally was unstoppable, thanks to the urbanization and industrialization of China and other high-growth countries. That cheery theory was destroyed by the global financial crisis and the relentless growth of China’s own aluminum smelting industry.

The aluminum glut was so big that Rio put its Pacific Aluminum (PacAl) business in Australia on the auction block in 2011, a move that naturally triggered speculation that Alcan would go, too. The diamond business, which includes the Diavik mine in Canada’s Northwest Territories, was also a sales candidate.

But PacAl failed to attract a big price and Mr. Walsh has decided to keep it. Ditto the diamond division. He is evasive when asked whether the company seriously considered cutting Alcan loose and insists it’s staying put. “Alcan will have its day in the sun,” he says. “It’s the western world’s lowest-cost producer, it’s highly efficient and the majority of its aluminum is made using green hydro power.”

But Rio’s aluminum business is not escaping the Mr. Walsh treatment, which is centred on massive spending cuts. Earlier this month, he announced that overall capital spending is to fall by 20 per cent in each of the next two years, taking it down to $8-billion by 2015. The aluminum division, dominated by Alcan, is to see costs come down by $1-billion by the end of 2014. The Gove alumina refinery in northern Australia is to be closed. Spending on exploration and project evaluation has already come down by $750-million a year.

Mr. Walsh claims the overhaul is working, even if the shares have yet to rebound. In the half year to the end of June, Rio reported profit of $1.7-billion.

He certainly seems relaxed and is finding the time to enjoy himself. There are concerts to see, galleries to visit and paintings to collect. One of his paintings, a depiction of a waterfall by the Aussie artist Brendon Darby, is six metres high and is installed in his house in Perth. He has about 350 milk jugs, considers them art and wants more.

“I’m not going to retire,” he said. “I don’t know what I’ll be doing in two, three, four years, but it won’t be retirement. I’m really interested in arts, theatre, opera, orchestra, you name it. And milk jugs.”

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The Walsh Index

Favourite meal: Beef eye fillet steak.

Favourite drink: Coca-Cola “I’m a Cocaholic.”

Last book read: A biography of Justin Welby, Archbishop of Canterbury.

Favourite holiday destination: Venice.

Favourite museum: The Louvre.

Favourite residence: Home in Perth.

The pin he wears on his lapel: An Order of Australia, in recognition for distinguished contribution to business and community.

The CEO he admires most: Jack Welch, former boss of General Electric.

Favourite suit maker: “All my suits are Canali.”

Favourite pastime: Collecting milk jugs and visiting antique shops.

Sport of choice: “None. I don’t have a sporting bone in my body.”

Religion: Anglican.

Modern artists whose works he collects: Ken Knight, Brendon Darby.

The song he’d like played at his funeral: Jean Langlais’s Messe Solennelle.

Children: Two sons and a daughter, all in Australia.

 

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