Mineral Giant Rio Tinto Balances Politics and Geology
STANFORD GRADUATE SCHOOL OF BUSINESS —For global mining conglomerate Rio Tinto, 2008 was both the best of times and the worst of times.
A world leader in production of copper, coal, diamonds, and iron ore, the company's business was expanding at breakneck speed that year. They had just purchased Canadian aluminum company Alcan for $38.1 billion, making them the largest aluminum producer in the world.
Then, in October, the economic downturn hit.
Almost immediately, cargo ships disappeared from Australian ports near Rio Tinto's mines as orders dried up. "Things just fell apart," said Bret Clayton, group executive of business support and operations.
Despite the drop, Clayton said, 2008 ended up as a record financial year for the company, which is investing heavily in developing its operations so it can supply regions of the world where demand for resources is burgeoning - areas including China.
How Rio Tinto is charting its future path was the focus of a talk by Clayton, who appeared as part of the Global Speaker Series at the Stanford Graduate School of Business on November 16.
Foremost is finding untapped sources of the company's array of products. Many mineral deposit sites around the world have already been developed, and the process of finding new mines is complicated and expensive. "We can?t choose where we go to operate," Clayton said. "We have to go where the resources are."
For example, fast growth throughout Asia - and the construction and manufacturing that brings - translates to a substantial rise in demand for raw materials, including copper. By 2030, Rio Tinto projects it will need to double its annual copper production to 30 billion tons. Now, the company is developing a large mine in Mongolia that is expected to produce a half-million tons of copper each year. But the company must open 30 similar operations to meet future demand, Clayton said, and each will cost about $5 billion to develop.
Finding local employees for its many far-flung operations has also proved challenging as Rio Tinto seeks to make its workforce more diverse.
In some countries, including Australia, there's an undersupply of talent, Clayton said: "You cannot get enough engineers and people to do construction and run operations."
However, it's a different story in Africa and Mongolia. For example, in the African island nation of Madagascar, Clayton said, "the people we hired and trained to work there, build it, and operate it don't even wear shoes. Yet, they can't come to work on our operations without hard-toed boots and safety gear." In those regions, he said, the company is training local residents to work as welders and mechanics, an education process that takes time.
In Mongolia, the company is offering scholarships to hire and train new university graduates. "When we run an operation in Mongolia, we don't want it run by a bunch of white British people or Americans," he explained. "We want it run by Mongolians, ultimately." And, throughout the organization, Rio Tinto is increasing attention to employee training, mentoring, and coaching to build its next generation of leaders. The company is investing heavily to develop new technology. In Australia, remotely operated trains and trucks carry products from mines to production facilities and ports, sometimes many miles away. Rio Tinto is creating automated tunneling systems for underground mines, which is an important advance as new, plentiful deposits are being found much deeper underground than in the past. New sorting systems, similar to those used in the food industry, are also in the works.
Foreign governments often want partial ownership in Rio Tinto's multibillion dollar developments in the form of joint ventures or other alliances. Already such deals are in place in Madagascar, which holds a 20% share, and in Mongolia, which has a 30% stake, Clayton said. Chinalco, a major state-controlled mining enterprise in China, is a Rio Tinto shareholder.
Rebuilding Rio Tinto?s reputation is another priority following the recent trial of four of the company's employees in China on charges of commercial espionage and bribery. "That hurt us. It hurt us with other governments around the world, and it hurt us in China," Clayton said. "We have been working on that relationship very hard. We have made quite a bit of progress. But we have work to do."
While most questions posed by the MBA students focused on the mining firm's operations, Clayton also addressed what it takes to manage people and one?s own career. He advised students to make sure they create a career path and follow it faithfully. Such planning took Clayton to jobs in Australia and London.