Sam Walsh is a curious mix of plain-spoken modesty and polished style. With his cherubic face and easy smile, the Australian chief executive officer of Rio Tinto, the world’s second-largest mining company, would make the perfect Santa Claus. He is addicted to Coca-Cola, loves to tell stories and has a dotty obsession with milk jugs, the little porcelain ones you find on tea or coffee trays.
In China, he once paid for an entire dinner set just so he could nab the one jug that went with it. “I pulled the milk jug out and stuck it in my pocket,” he says, grinning. “The store owner went mad because she was left with a dinner set without a jug.”
Yet he is also addicted to fine suits – Canali is his brand – collects modern art and, along with his wife Leanne, is a regular at London’s Royal Albert Hall.
His easy-going manner is deceiving; his job is to fix the damage inflicted on the company by an epic spending spree that was highlighted by the $38-billion (U.S.) purchase in 2007 of Montreal’s Alcan, probably the biggest, stupidest resources deal of the last decade. He is doing it with the steely efficiency of the great white sharks hunting in the waters off his home town of Perth, Western Australia.
Since January, when he was plucked from Rio’s iron ore business to run the whole show, he has put the mining company through a counter-revolution that has seen billions cut from capital spending and expenses. The new focus is on shareholder value, not relentless expansion. Call it mining in the age of austerity. “In terms of the fix-up job, I think we’re already there,” he said over breakfast in his sixth-floor office of Rio’s central London headquarters. “The businesses are motoring along. You can feel the momentum.”
That wasn’t the case last year, when Rio lost $3-billion, its first annual loss in decades, and half the company was either for sale or rumoured to be for sale. Tom Albanese, Mr. Walsh’s predecessor, was ousted – punishment for the open-cheque growth strategy that had triggered writedowns of $28-billion in the aluminum businesses alone.
My breakfast with Mr. Walsh was not our first encounter. We had met in September, when he and the CEOs of Newmont Mining and Anglo American popped up at a Vatican mining conference in Rome that was hosted by Cardinal Peter Turkson, president of the Pontifical Council for Peace and Justice. The meeting was billed as a “day of reflection with the mining industry,” though there wasn’t a lot of kneeling and praying. Mr. Walsh said the event was designed “to open a dialogue where mining interfaces with the community.”
The article I wrote about the odd little Vatican event concluded that, given the mining companies’ often sorry history of spoiling the Edens bestowed on them, “it may be easier for a camel to pass through the eye of a needle than a mining boss to enter the kingdom of God.” To which Mr. Walsh replied in an e-mail: “I have however recognized for some time that getting me through the eye of a needle is going to be quite a challenge, but I enjoy challenges.”
That’s why he was eager to take the top job at Rio.
Mr. Walsh said he had no idea he would emerge as Mr. Albanese’s successor, even though he had been running Rio’s most profitable business – iron ore – and had earned a good reputation as the company’s Mr. Fix-it.
“My wife and I were in Singapore the weekend [before Mr. Albanese left],” Mr. Walsh said. “We were ensconced in the Raffles hotel. I woke in the morning to a flurry of e-mails. ‘Drop everything, come to London, come as you are. There is an emergency board meeting.’ So I said to Leanne that I’ve got to get a suit, a white shirt and a tie, and thank God I did. By Thursday of the following week, I was appointed CEO. I was fronting the media, and I don’t think a Hawaiian shirt would have done the trick. I was wearing the suit I had made in Singapore in 24 hours.”
Mr. Walsh had thought his age – he was 63 when he was appointed – would have worked against him. When I tell him he really doesn’t look a day over 62, he laughs heartily.
Breakfast is ample. We are treated to eggs benedict, Greek yogurt topped with fruit, salmon, assorted berries, coffee and tea. There is no server. Mr. Walsh himself rises to pour the coffee and clear the plates. The office is far from luxurious. The furniture seems one step above IKEA, but I notice some rather striking oil paintings.
Mr. Walsh is an unlikely mining CEO because he is not a finance man, engineer or geologist. The son of a postmaster, he was born in Melbourne, received a commerce degree from the University of Melbourne and, keen to work at an international company, joined the Australian division of General Motors.
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.”
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.”
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.