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DealBook: Rio Tinto to Book $14 Billion Write Down; C.E.O. Replaced

January 17, 2013 by Leave a Comment

Philippe Lopez/Agence France-Presse – Getty Images

5:42 a.m. | Updated

LONDON – Rio Tinto, the Anglo-Australian mining giant, said on Thursday that its chief executive had stepped down because of a $14 billion write-down on the value of assets that he helped acquire.

Tom Albanese is leaving Rio Tinto after joining two decades ago and spending five years in the top job. He will be succeeded by Sam Walsh, head of the company’s iron ore unit. Doug Ritchie, who led the purchase of coal assets in Mozambique whose value has dropped, also stepped down.

Jan du Plessis, Rio Tinto’s chairman, said the scale of the write-down related to the assets in Mozambique was “unacceptable.”

“We are also deeply disappointed to have to take a further substantial write-down in our aluminum businesses, albeit in an industry that continues to experience significant adverse changes globally,” he said in a statement on Thursday.

The write-downs are linked to two of Rio Tinto’s biggest acquisitions in recent years: Alcan and the coal producer Riversdale Mining. The company blamed falling aluminum prices for $10 billion to $11 billion of the noncash charge. Most of Rio Tinto’s aluminum assets stem from its $38 billion acquisition of Alcan in 2007, which was led by Mr. Albanese.

The acquisition has weighed heavily on Rio Tinto’s performance, and some investors had criticized the firm for paying too much in a buoyant market just to avoid becoming a takeover target. Rio Tinto already wrote down $8.9 billion on the value of these assets a year ago.

Another $3 billion of the write-down has been attributed to lowered estimates of the value of its coal business in Mozambique, after the company failed to secure crucial government approvals to ship coal it mined in the African country. Rio Tinto bought Riversdale Mining for around $4 billion in 2011 after having to increase its offer price because of a standoff with the company’s shareholders.

Rio Tinto, the world’s second-largest mining company after BHP Billiton, cited strong currencies and high energy and raw material costs as other factors leading to the write-down.

“The level of the write-down is very disappointing and it does come as a surprise,” said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers. “There have been some rash takeovers in the mining industry and I hope this continues to prove a lesson.”

Rio Tinto’s shares fell 1.9 percent in morning trading in London on Thursday. The company’s shares have dropped more than 5 percent in the last 12 months compared with a 0.5 percent increase in the stock price of BHP Billiton in the same period.

Mr. Albanese said in the company’s statement that he fully recognized “that accountability for all aspects of the business rests with the C.E.O.”

Mr. Albanese will stay on until July 16 to help with the transition. He will not receive a bonus for this year and any outstanding remuneration in form of deferred stock bonuses would lapse, Rio Tinto said.

Article source: http://dealbook.nytimes.com/2013/01/17/ceo-replaced-as-rio-tinto-to-book-14-billion-write-down/?partner=rss&emc=rss

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Australia’s Mining Boom Is Pied Piper for Workers

May 31, 2011 by Leave a Comment

SYDNEY — Having grown up in a working-class suburb of Sydney, 20-year-old Brian Felice said, he never planned to follow in his father’s footsteps as a construction worker. Perhaps, he thought, he would join one of his three older brothers in the gleaming Sydney office towers from which they navigated the high-flying worlds of finance and banking.

But in Australia these days, finance just is not where the money is. A mining boom has lured thousands of workers into resource-related fields, leaving tourism, manufacturing and many other sectors short of skilled labor.

Mr. Felice set out for the state of Western Australia, home to a boom in resource production unrivaled since the great gold rushes of the 19th century. After two years building homes for miners in the sprawling camps dotting the western desert, he made enough money to buy a home of his own in Sydney’s notoriously expensive real estate market, with enough left over to put himself through college.

And just what is he studying? Construction, of course.

“I was getting, like, 27 dollars an hour in Western Australia, rather than maybe 15 dollars an hour in Sydney,” he said in a telephone interview. The wages are the equivalent of $29 and $16.

“I just couldn’t believe how much money it was. I’m an 18-year-old kid at the time,” he said, adding, “I just could not believe how hard it can be in Sydney for an 18-year-old.”

Australia’s economy is booming, thanks largely to soaring demand for its abundant deposits of coal and iron ore — not to mention natural gas and gold — which India and China have been gobbling up to fuel their own surging economic growth. Even during the global financial crisis, Australia, unlike many Western economies, registered modest growth, a trend that has since accelerated, as commodity prices have regained their footing.

But both Prime Minister Julia Gillard’s government and private sector economists have been increasingly vocal about what they fear is the dark side of that growth. Resource sectors, and related sectors like construction, are to a rising extent taking precedence over other industries, like tourism and manufacturing. The effect is a distorted economy, as the resource boom sucks up the already thin pool of skilled laborers and drives labor costs up across the board.

Australia is now facing a problem many Western countries would be happy to have: There simply is not enough skilled labor to fill all of the jobs being created by the hot economy, said Paul Bloxham, a former Australian Reserve Bank economist who is now HSBC’s chief economist for Australia and New Zealand.

“I think we’re moving to a world where the mining industry and all the associated jobs — in construction and in professional services — are going to be the main thing where there are skill shortages,” he said in an interview. “And that’s going to put upward pressure on those wages, and people will transfer across to those jobs from other industries.

“I suspect that’s the next problem we’re going to face: not enough labor on the supply side to meet the demand out there in terms of jobs that are being created in the mining industry.”

A report on the skill shortage issued recently by a government task force agrees, saying Australia will need to add 2.4 million skilled workers by 2015 to meet businesses’ growing needs. That is after allowing for the replacement of retiring baby boomers, as well as a drooping birth rate, problems that led Ms. Gillard to warn recently of a “yawning demographic deficit.”

Ms. Gillard began sounding the alarm in February in a speech to business leaders in Melbourne, calling the skill shortage “the biggest challenge arising from the boom.” The mining industry, with its high salaries promising even unskilled laborers the opportunity to get rich quick, was like “a magnet dragging iron filings towards it.”

Article source: http://feeds.nytimes.com/click.phdo?i=c95308bf633e714bcb8e5a2dbe6202e9

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China’s Interest in Farmland Makes Brazil Uneasy

May 27, 2011 by Leave a Comment

Officials in this farming area would not sell the hundreds of thousands of acres needed. Undeterred, the Chinese pursued a different strategy: providing credit to farmers and potentially tripling the soybeans grown here to feed chickens and hogs back in China.

“They need the soy more than anyone,” said Edimilson Santana, a farmer in the small town of Uruaçu. “This could be a new beginning for farmers here.”

The $7 billion agreement signed last month — to produce six million tons of soybeans a year — is one of several struck in recent weeks as China hurries to shore up its food security and offset its growing reliance on crops from the United States by pursuing vast tracts of Latin America’s agricultural heartland.

Even as Brazil, Argentina and other nations move to impose limits on farmland purchases by foreigners, the Chinese are seeking to more directly control production themselves, taking their nation’s fervor for agricultural self-sufficiency overseas.

“They are moving in,” said Carlo Lovatelli, president of the Brazilian Association of Vegetable Oil Industries. “They are looking for land, looking for reliable partners. But what they would like to do is run the show alone.”

While many welcome the investments, the aggressive push comes as Brazilian officials have begun questioning the “strategic partnership” with China encouraged by former President Luiz Inácio Lula da Silva. The Chinese have become so important to Brazil’s economy that it cannot do without them — and that is precisely what is making Brazil increasingly uneasy.

“One thing the world can be sure of: there is no going back,” Mr. da Silva said while visiting Beijing in 2009.

China has become Brazil’s biggest trading partner, buying ever increasing volumes of soybeans and iron ore, while investing billions in Brazil’s energy sector. The demand has helped fuel an economic boom here that has lifted more than 20 million Brazilians from extreme poverty and brought economic stability to a country accustomed to periodic crises.

Yet some experts say the partnership has devolved into a classic neo-colonial relationship in which China has the upper hand. Nearly 84 percent of Brazil’s exports to China last year were raw materials, up from 68 percent in 2000. But about 98 percent of China’s exports to Brazil are manufactured products — including the latest, low-priced cars for Brazil’s emerging middle class — that are beating down Brazil’s industrial sector.

“The relationship has been very unbalanced,” said Rubens Ricupero, a former Brazilian diplomat and finance minister. “There has been a clear lack of strategy on the Brazilian side.”

While visiting China last month, Brazil’s new president, Dilma Rousseff, emphasized the need to sell higher-value products to China, and she has edged closer to the United States. “It is not by accident that there is a sort of effort to revalue the relationship with the United States,” said Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson International Center for Scholars. “China exposes Brazil’s vulnerabilities more than any other country in the world.”

China’s moves to buy land have made officials nervous. Last August, Luís Inácio Adams, Brazil’s attorney general, reinterpreted a 1971 law, making it significantly harder for foreigners to buy land in Brazil. Argentina’s president, Cristina Fernández de Kirchner, followed suit last month, sending a law to Congress limiting the size and concentration of rural land foreigners could own.

Mr. Adams said his decision was not a direct result of land-buying by China, but he noted that huge “land grabs” in Latin America and sub-Saharan Africa, including China’s attempt to lease about three million acres in the Philippines, had alarmed Brazilian officials.

“Nothing is preventing investment from happening, but it will be regulated,” Mr. Adams said.

A World Bank study last year said that volatile food prices had brought a “rising tide” of large-scale farmland purchases in developing nations, and that China was among a small group of countries making most of the purchases.

Reporting was contributed by Myrna Domit from São Paulo, Brazil, Charles Newbery from Buenos Aires, David Barboza from Shanghai and Keith Bradsher from Hong Kong.

Article source: http://www.nytimes.com/2011/05/27/world/americas/27brazil.html?partner=rss&emc=rss

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New Ways to Exploit Raw Data May Bring Surge of Innovation, a Study Says

May 13, 2011 by Leave a Comment

Math majors, rejoice. Businesses are going to need tens of thousands of you in the coming years as companies grapple with a growing mountain of data.

Data is a vital raw material of the information economy, much as coal and iron ore were in the Industrial Revolution. But the business world is just beginning to learn how to process it all.

The current data surge is coming from sophisticated computer tracking of shipments, sales, suppliers and customers, as well as e-mail, Web traffic and social network comments. The quantity of business data doubles every 1.2 years, by one estimate.

Mining and analyzing these big new data sets can open the door to a new wave of innovation, accelerating productivity and economic growth. Some economists, academics and business executives see an opportunity to move beyond the payoff of the first stage of the Internet, which combined computing and low-cost communications to automate all kinds of commercial transactions.

The next stage, they say, will exploit Internet-scale data sets to discover new businesses and predict consumer behavior and market shifts.

Others are skeptical of the “big data” thesis. They see limited potential beyond a few marquee examples, like Google in Internet search and online advertising.

The McKinsey Global Institute, the research arm of the consulting firm, is coming down on the side of the optimists in a lengthy study to be published on Friday. The report, based on nine months of work is “Big Data: The Next Frontier for Innovation, Competition and Productivity.” It makes estimates of the potential benefits from deploying data-harvesting technologies and skills.

The McKinsey research unit, for example, says the value to the health care system in the United States could be $300 billion a year, and that American retailers could increase their operating profit margins by 60 percent.

But the study also identifies challenges. One hurdle is a talent and skills gap. The United States alone, McKinsey projects, will need 140,000 to 190,000 more people with “deep analytical” skills, typically experts in statistical methods and data-analysis technologies.

McKinsey says the nation will also need 1.5 million more data-literate managers, whether retrained or hired. The report points to the need for a sweeping change in business to adapt a new way of managing and making decisions that relies more on data analysis. Managers, according to the McKinsey researchers, must grasp the principles of data analytics and be able to ask the right questions.

“Every manager will really have to understand something about statistics and experimental design going forward,” said Michael Chui, a senior fellow at the McKinsey Global Institute.

The study estimates that the use of personal location data could save consumers worldwide more than $600 billion annually by 2020. Computers determine users’ whereabouts by tracking their mobile devices, like cellphones. The study cites smartphone location services including Foursquare and Loopt, for locating friends, and ones for finding nearby stores and restaurants.

But the biggest single consumer benefit, the study says, is going to come from time and fuel savings from location-based services — tapping into real-time traffic and weather data — that help drivers avoid congestion and suggest alternative routes. The location tracking, McKinsey says, will work either from drivers’ mobile phones or GPS systems in cars.

Personal location data raises privacy concerns. Both Google and Apple, for example, have faced protests recently for collecting location data without most users’ knowledge. The McKinsey report says such services should require that users have a choice and opt-in to use them, but the report does not deal with privacy issues in detail.

The sizable projected payoff for consumers, some experts say, is not surprising. “Much of the benefit of innovation always flows to consumers,” said Martin Baily, an economist at the Brookings Institution, who was an adviser on the study. “So the large consumer surplus makes sense.”

In health care, the biggest slice of the $300 billion gain is expected to come from more effectively using data to inform treatment decisions. The tools include clinical decision support to assist doctors, and comparative effectiveness research to make more informed decisions on drug therapy.

For example, the Department of Veterans Affairs and Kaiser Permanente save millions of dollars a year in treating many patients with high cholesterol with generic statins instead of branded statins, like Lipitor. But such tailored treatments require electronic health records for tracking results, and most of the nation’s hospitals and physicians still use paper records.

Skeptics say the economic payoff from harnessing big data sets is mostly wishful thinking so far. The nation’s technology-assisted increase in productivity began in 1995 and continued through 2004, having trailed off since, despite investments in data analytics.

“The big dividend mostly hasn’t arrived yet,” said Tyler Cowen, an economist at George Mason University.

The McKinsey authors say that the big-data trend is just getting under way. It will take years, they say, before the gains show up in the economic statistics, just as it did for computers to prove they were engines of productivity.

“But it’s clear that data is an important factor of production now,” said James Manyika, a director of the McKinsey Global Institute.

Article source: http://feeds.nytimes.com/click.phdo?i=5a30d792f94279a1904fb1cd527117d5

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As China Invests, U.S. Could Lose

May 4, 2011 by Leave a Comment

Now, China is poised to return the investment favor. The question is whether the United States will be willing and able to fully participate, according to a new study to be released Thursday.

Flush with capital from its enormous trade surpluses and armed with the world’s largest foreign exchange reserves, China has begun spreading its newfound riches to every corner of the world — whether copper mines in Africa, iron ore facilities in Australia or even a gas shale project in the heart of Texas.

The study, commissioned by the Asia Society in New York and the Woodrow Wilson Center for International Scholars in Washington, forecasts that over the next decade China could invest as much as $2 trillion in overseas companies, plants or property, money that could help reinvigorate growth in the United States and Europe.

But the report, to be released at a Washington news conference that Commerce Secretary Gary Locke plans to attend, also warns that the United States risks missing out on a large share of the Chinese investment boom because of politics, a growing rivalry between the two nations and deep-seated perceptions that Chinese investments are unwelcome in America.

“If political interference is not tempered,” the study warns, some of the benefits of Chinese investment — “such as job creation, consumer welfare and even contributions to U.S. infrastructure renewal — risk being diverted to our competitors.” While Wall Street banks have lobbied for more Chinese investments in the United States, hoping that will bring bigger deals for the banks, Washington has remained wary — even though the Obama administration says it welcomes Chinese money.

But anti-China rhetoric is hot in Washington and among many state and local officials. One frequently cited worry is that Chinese companies, many of them owned partly or entirely by the government, will use their purchases to gain military secrets. Another concern is that Chinese companies will buy American companies with manufacturing operations in the United States, close those factories and move production to China.

China, of course, is already a force in global markets. Over the last few years, it has made multibillion-dollar loans to developing nations and let its state-owned companies acquire minority stakes in global powerhouses like Rio Tinto, Morgan Stanley and the Blackstone Group.

China is also a major player in the global debt markets, holding about $1.6 trillion in United States Treasury bonds, an investment that helps keep American interest rates low and finances America’s enormous debt.

But China is still a relatively small player in overseas direct investments, which include purchases of large, voting stakes in foreign companies and plants. That also includes investments in new construction projects on previously undeveloped land — so-called greenfield facilities.

Last year, China’s overseas direct investments amounted to about $59 billion. By comparison, the United States’ figure was over $300 billion.

But with Beijing pushing its big companies to go overseas and invest in resources and technology, China’s investments could soon reach $100 billion to $200 billion a year, according to the Asia Society study.

The potential problem for Beijing is that Chinese companies are not always welcomed overseas — not only because China wields enormous economic clout but because state-owned giants are believed to be subsidized by the state and possibly working in the interest of the government.

Congressional critics of China’s investment aspirations including Senator Jack Reed, Democrat of Rhode Island. “Many of these companies are so closely intertwined with the government of China that it is hard to see where the company stops and the country begins, and vice versa,” Mr. Reed recently told Reuters.

A series of proposed Chinese deals in the United States have been blocked by regulators or attacked by local politicians, who say they are worried China could gain access to sensitive military technology or take control of valuable natural resources.

In 2005, one of China’s giant oil companies, Cnooc, dropped its bid to acquire the American oil giant Unocal after a Congressional investigation into the purchase. And in recent years, the Chinese telecommunications giant, Huawei, has repeatedly been rebuffed from making deals in the United States, over national security concerns.

Keith Bradsher contributed reporting from Hong Kong.

Article source: http://www.nytimes.com/2011/05/04/business/global/04yuan.html?partner=rss&emc=rss

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