Commodity prices are by nature volatile. No one knows this better than Leigh Clifford, who stepped down as chief executive of the mineral and mining company Rio Tinto on May 1. When Clifford took the reins seven years ago after three decades with the company, prices for copper, iron ore, and other metals were in the dumps. Now they are hovering near record highs. Under Clifford's watch, Rio Tinto moved swiftly to take advantage of exploding demand, especially from China. Indeed, demand for copper and iron ore in the world's fastest-growing economy boosted the mining giant's profits 43% last year, to a record $7.4 billion.
Aware that the bull market will come to an end at some stage, Rio Tinto has poured money into acquisitions and new exploration projects to sustain growth. Last year alone, Rio boosted capital investment by 56%, to $3.6 billion, helping it secure the No. 3 spot on this year's BW50 list of top European companies. Clifford is "leaving behind a great legacy," says Charles Cooper, mining analyst at NCB brokers in London. "He's been an aggressive player in the metals and mining market…and maintained a solid company."
Rio Tinto's name reflects its roots as a company formed by investors in 1873 to mine ancient copper beds in the south of Spain. Acquired by the Rothschilds of London, Rio Tinto's modern-day incarnation is the result of Britain-based Rio Tinto's 1962 purchase of a majority stake in Australia's Consolidated Zinc. It has become one of the titans of the mining industry, second only to Anglo-Australian rival BHP Billiton (BHP), with interests in copper, iron ore, coal, uranium, and diamonds.
Rio Tinto has had its share of acquisitions, snatching up more than 60 companies since 1980. The company tends to invest in large, "long life" deposits that ensure a reservoir of future growth and enable it to ramp up production in line with demand. Rio last year acquired the La Granja copper project in Peru and took an ownership interest in two others, including Canada's Ivanhoe Mines, which runs the Oyu Tolgoi deposit in Mongolia.
Copper remains the biggest money spinner, generating 48% of Rio's profits in 2006. Some experts expect that portion to fall to about 30% in the next few years as prices come off their highs. Iron ore, which accounts for about 30% of profit currently, will become an increasingly important part of the mix, thanks to China's voracious demand for steel. Rio is midway through a $5 billion expansion project that will double output at its Western Australia iron ore mines, to 220 million tons, by 2009.
But the company also recognizes that growth lies in new areas and is redoubling efforts to strengthen its other sectors, as highlighted by Rio's exploration joint venture with Norilsk Nickel in Russia, inked in 2005. What bodes well for the future, says NCB's Cooper, is that Rio's new CEO, American-born Tom Albanese, was a "big instigator" behind some of the company's recent major acquisitions and explorations in his former role as director of group resources, including the Norilsk Nickel and Ivanhoe Mining deals.
That sense of where Rio needs to go next could serve Albanese well. Experts estimate the high commodity prices—which so far show no sign of tumbling—could give the company a net cash balance of about $4 billion by the end of 2008. That gives it a lot of firepower for more deals. Russia, Zambia, and the Congo are all regions where Rio could make a move next.
With its disciplined approach and a new CEO who has been actively involved in some of the company's most exciting deals in recent years, Rio Tinto looks well-positioned to keep right on digging ever more commodities—and cashing in.