Tom Albanese

Tom Albanese
Chief Executive

Rio Tinto

Tom Albanese joined Rio Tinto in 1993 on Rio Tinto's acquisition of Nerco and held a series of management positions before being appointed chief executive of the Industrial Minerals group in 2000, after which he became chief executive of the Copper group and head of Exploration in 2004. He took over as chief executive with effect from May 2007. He is a member of the board of visitors, Duke University, Fuqua School of Business. He has a BS in Mineral Economics and a MS in Mining Engineering.

 

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A view from the top

In this short video, Tom Albanese shares his view on today's key business issues: risk, volatility, innovation, talent, and growth

Quotes

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

We continue to see exceptional growth coming out of China, and increasingly from other emerging economies. And we continue to see growth coming from those 2.5 billion people who are aspiring to become middle class and consume on that basis.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

We can weather that volatility better than some other companies. And that presents us with competitive advantage, which is particularly compelling in periods of volatility when competitors may not be able to sustain their growth. As a result we may find ourselves better positioned in five or 10 or 15 years’ time.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

As we look ahead this demand pull is putting more strain on our ability to grow, find the right people, and find the right capabilities to keep up with that growth. So, access to the best people and access to talent globally is becoming increasingly important and increasingly challenging for us.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

Generally the people asking about the environment or sustainable development are more on the fringes of investment decisions rather than the core. I hope that’s changing and I think it will progressively change going forward.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

We shouldn’t though, assume that OECD countries are a piece of cake because, as we’ve seen in Australia over the past two years, we’ve had to fight off what would have been a quite destructive super tax that was proposed by the prior government in Australia.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

We have to create training career paths for them at different stages of their life cycle.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

Now with increasing globalisation and recruitment challenges, we’ve developed a greater range of strategic programmes with some top universities around the world and are helping them tailor their programmes toward our career requirements.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

People of my generation will be retiring over the next 10 years leaving a pretty shallow pool of people; then everyone will be struggling and competing for a limited group of experienced mining professionals. But we do find that we can go outside our sector, for example, for mechanical engineers or people in the auto sector who are good with industrial enterprises.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

In it we are looking at ways to radically re-design the work process in order to increase productivity and do more with fewer staff, which is particularly important in remote locations where it’s hard to attract or retain enough of the right people.

Tom Albanese

Tom Albanese

Chief Executive, Rio Tinto

We do more with universities the world over, we do more with speciality robotics groups and I suspect as we keep reaching out we’ll see more and more collaborative activities outside the traditional mining space.

 

Read interview transcript

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How confident of growth are you in the current environment?

I’d like to say I’m confident about growth in the current environment but with such a high level of volatility and such a focus on events taking place in the world, particularly around Europe and the Euro, it is a challenge to see the course of 2012 clearly.

And beyond 2012?

On recent evidence, I think we are looking at flat to potentially declining economic growth in Europe which could persist for two years.  We would hope to avoid a double dip in the United States and I think the numbers I’ve been seeing in our businesses suggest that things are slightly more robust in the United States than we would have thought about two months ago.  I think China will see plus 8% GDP growth next year.

In December, I received two wildly divergent views on how jewellery sales are playing coming into the holiday season.  Our diamond people said they have seen some of the best sales ever while our gold people said that retail sales have dropped off the cliff.  Now these are two views of the same market and reflect the wide range of views on the 2012 economy. 

And if you look beyond 2012 where do you see your greatest prospects for growth coming from?

In spite of the uncertainty that we’re seeing now, our longer term picture has been virtually unchanged for the past five years.  We continue to see exceptional growth coming out of China, and increasingly from other emerging economies.  And we continue to see growth coming from those 2.5 billion people who are aspiring to become middle class and to consume on that basis. Their expectations are now higher than their parents’ were and will be even higher for their kids.  They will want to live in an apartment block, they want access to the internet, and they want to have their own iPad and iPhone and automobile.  This is all very metals consumptive and we foresee the same phases of growth experienced in developed countries many years ago playing out across a much larger population group – a population group of one or two billion. This is a very strong driver for growth and demand in our business. Somehow we have to manage through the high levels of volatility and be ready when the markets want us. 

You’ve talked about volatility as one of the biggest risks you face and you’ve also talked about divergent views, your diamond story.  How are you dealing with that? 

Well volatility can be a challenge for us, of course, but it also can be a virtue because of the strengths that we have.  We are the low cost producer in the sector and if we’re not, we want to be.  We have a strong balance sheet, we have the size and the scale to carry out very, very, large projects which in our sector are worth many billions of dollars apiece. So we can weather that volatility better than some other companies.  And that presents us with competitive advantage which is particularly compelling in periods of volatility when competitors may not be able to sustain their growth. As a result we may find ourselves better positioned than them in five in 10 or 15 years’ time.  But we still have to be quite astute to the changes because it’s a lot more fun at the top of the cycle than at the bottom. 
In that respect we’re a two speed culture: everyone is galloping at a fast pace at the top of the cycle and standing still at the bottom of the cycle and neither of those are the right answer because you tend then to be investing on a cyclical basis rather than on a counter cyclical basis.  So, I have to spend a lot of time with the team to say ‘Woah, let’s slow that galloping’.  But, we don’t want to stop.

If you look more broadly what impacts of the current fiscal position of governments concern you most? 

We are a cyclical business and these cycles tend to be 10 year cycles.  When it’s good, it’s really good, but when it’s bad it can be really bad.  And so if we are to invest across those very long term cycles with many billions of dollars, we have to be in an environment of fiscal stability.  And if at any point we suffer from uncertainty on what our taxes or royalties are going to be or there is a change in the investment conditions of the country, it has the effect of creating more risk.  That increases our cost of capital, and has the effect of reducing the amount of re-investment - which one day might have produced more taxes for those countries.  So in the longer term they might find that they’re not seeing the re-investment, nor the jobs, nor the economic benefits they would have seen in the long term. 

How your strategy is changing?

We continually look at our strategy, review it and refresh it for the conditions we’re faced with.  But the essence of it hasn’t really changed over the past 10 or even 20 years and that is to invest in large, low-cost, long-life ore deposits or businesses that have the ability to do well in good times, be resilient in bad times and have options for expandability as the markets or the technology expand. We’ve had to adapt to changing external marketing conditions and changing external expectations.  So, for example, starting in about 2000 we began to focus more on the social environment: health and safety, environmental conditions and how we relate to the community.

We take pride in the huge effort we put into sustainable development. We’ve also had to adapt it to the fact that the rise of China has put a tremendously increase demand pull on our sector which is very good for our shareholders but also puts more pressure on us to continue to grow particularly in a volatile environment.  Now we’re going through a new shift: our sector is actually more profitable now, and it makes a bigger difference for governments and international trade.

As well as engaging at the local level, increasingly we have to interact with governments to resist the temptation of resource nationalism and to make sure that investments like ours can actually continue to be sustainable and re-investable in the long run. Now we have to adapt to a period of considerable prosperity which is beneficial for our sector and certainly good for the shareholders of Rio Tinto.  As we look ahead, this demand pull is putting more strain on our ability to grow, find the right people and find the right capabilities to keep up with that growth.  So, access to the best people and access to talent globally is becoming increasingly important and increasingly challenging for us. 

How are you starting to measure the impact of your sustainability efforts in relation to your corporate value?  Is it something your shareholders are really paying attention to?

Generally the people asking about the environment or sustainable development are more on the fringes of investment decisions rather than the core.  I hope that’s changing and I think it will progressively change going forward.  For our part we’re increasingly building information about sustainable development and key metrics into corporate and shareholder communication.  We have a whole series of measurements on carbon intensity, overall safety record and energy efficiency that we present in our annual report on a regular basis.  This year we’ve also reported on our total tax payments for the first time.  And on the point of more engagement with host governments about preserving the stability of a fiscal regime, it’s best for us to put the data on the table.

This transparency is something that we take pride in.  In discussions in December with two African heads of state I emphasised how important it is for us, as we consider investments there, for the payments of the host government to be transparent.  And we measure that transparency on whether they’re members of the Extractive Industries Transparency Initiative or certified under EITI.  But in that same conversation I explained to them that we will meet our side of the bargain by publishing what we pay.  And that transparency is important both ways.

Can you talk further about how the attractiveness of different countries and different regions is changing, maybe beyond China?

Well we have a global strategy, we’re investing or exploring or doing business in probably over 30 countries.  So, Australia number one, Canada number two and the US number three, but almost 85% of our current earnings would be coming out of OECD countries.  That’s actually a good thing because on an overall risk basis we’re not particularly exposed to country risk.  But our strategy is global so we do have to be ready to look for the best ore bodies anywhere in the world.  So I’m very happy to be positioned with the next best copper mine in the world in Mongolia, or the next big iron ore mine in Guinea.  Or we hope to be the next big coking coal base in Mozambique.  These are going to be important for future growth.  It’s harder to develop in these countries as more interaction with governments is required. 
When we’re looking to develop big mines in emerging nations we always have to recognise the size of our business, not just in absolute terms but relative to the country.  And just to give you one example, the training budget for our Oyu Tolgoi copper mine in Mongolia is more than the entire education budget for the country.  A project which is big on the world stage is particularly large from an emerging country’s perspective. These are big numbers, amounting to perhaps 30% of a country’s GDP, and this means we have to have regular engagement with that country and put more effort into it.  We shouldn’t though, assume that OECD countries are a piece of cake because, as we’ve seen in Australia over the past two years, we’ve had to fight off what would have been a quite destructive super tax that was proposed by the prior government in Australia.  And we are dealing with much higher inflationary rates there too which could have implications for competitiveness on the world stage.

How do the talent challenges differ from market to market?

We have a range of markets that we’re working with and they present different challenges and opportunities for talent.  We really do need to staff up local businesses with people from those countries.  It doesn’t make sense to have large numbers of ex-pats working all round the world, so we have to train, we have to develop and we have to attract the right local talent.  For the most part these locations are in pretty wild places.  And now most professionals want to be in urban locations, particularly if they have families. So it’s an increasing challenge to induce people to work in those difficult locations. We have to create training career paths for them at different stages of their life cycle. 

How are you collaborating with either governments or with educational institutions to help you develop the right pipeline of future skills and future employees?

As we develop our people we shouldn’t be looking at that in isolation.  Certainly we have to look at our relationship with universities.  Historically we’ve developed local university relationships and I think we’re good at a local level again where mining, technical, geological and business programmes have been identifying individuals who might want internships.  Now with increasing globalisation and recruitment challenges, we’ve developed a greater range of strategic programmes with some top universities around the world and are helping them tailor their programmes toward our career requirements. 

How confident are you that you’re going to be able to get the right talent to deliver that strategy?

I think long term this is still one of our bigger challenges.  Like the petroleum sector we probably had a 15 year gap between the late 1980s and the early part of the last decade where we weren’t hiring any new people at all. So we lost almost an entire generation of engineers or technical people.  People of my generation will be retiring over the next 10 years leaving a pretty shallow pool of people; then everyone will be struggling and competing for a limited group of experienced mining professionals.  But we do find that we can go outside our sector, for example, for mechanical engineers or people in the auto sector who are good with industrial enterprises. Sam Walsh, for example, our product group chief executive of the iron ore business, came from the auto sector.  And I think we’ll find more and more cases like that in the future. 

What kind of innovations are you focussed on?

We do focus quite a bit on innovation but I think in general the perception would be that a lot of mining is not innovation heavy. At Rio Tinto we have been taking a completely different path on that with what’s called the Mine of the Future™.  In it we are looking at ways to radically re-design the work process in order to increase productivity and do significantly more with the same or fewer staff, which is particularly important in remote locations where it’s hard to attract or retain enough of the right people.  We’ve really focussed on the automation of trucks and by 2016 half the material moved at Pilbara, for example, will be by autonomous driverless vehicles.
 

Are you seeing innovation changes to your processes coming from different parts of the organisation than they traditionally did?  Or are they coming from outside the organisation?

We have looked quite hard at our innovation model and we have adapted it over the past five years.   For example, when we purchased Alcan, which was an innovation intensive company, we used its intellectual property protection capabilities throughout Rio Tinto which gave us the commercial drive to step up our overall innovation effort.  Increasingly, we have to broaden our thinking beyond the normal relationships say with mining OEMs and the Caterpillars etc.  We do more with universities the world over, we do more with speciality robotics groups and I suspect as we keep reaching out we’ll see more and more collaborative activities outside the traditional mining space. 

What are the demands on your professional time? How are they changing?

I think as the sector has become bigger and more visible, chief executives like me are spending less of our time on the internals and more on the externals.  There’s quite a bit more external engagement required with the public, with what I call civil society, with multilaterals and with governments.  And I think that this is a trend that’s only going to continue in the future and has to be catered for in terms of career development.

Is diversity a talent issue?

Certainly as we look at becoming a more international business we are working harder to reflect that diversity. And that also needs to be reflected in the make-up of the management team.  And I’d say for the most part now we have Caucasian, Australian, British, American and Canadian senior executives.  Two of our Executive committee members are women but we need to do better and be seen to have a greater range of diversity within our ranks if we’re going to set the right example. 

How important is transparency in you playing your role and government playing their role? 

As we become a more global company and certainly as we take increasingly large profiles in emerging countries I think we can help set the standard in areas such as transparency and anti-corruption.  So regularly when I meet with heads of state I reinforce the importance to us of multilateral organisations and also multilateral standards such as, for example, the Extractive Industries Transparency Initiative as a Good Housekeeping seal of assurance. It gives me more confidence when investing perhaps billions of dollars in those countries. 

How challenging is to find the right talent to deliver your strategy?

Our business is becoming increasingly technical as we increasingly embark upon innovation, so we need a greater range of talents, not just on the engineering side but also with the soft skills, the sociologists and anthropologists etc. But where do we get that talent?  It’s going to be harder for us to find the right people for the right roles as we look to the future.  We do need to work within our own shop, but we also need to work with universities and I think from time to time we should be prepared to look outside our sector for talent.