Ditching Chinalco deal may cost Rio CEO

RIO Tinto chief executive Tom Albanese's decision to ditch the controversial Chinalco deal in favour of a $US15.2 billion ($19 billion) rights offer to appease shareholders may not be enough to keep him in the job.

"He has to go," said Charles Kernot, a London-based analyst at Evolution Securities. "He's been so closely associated with this deal that its failure must almost seal his fate."

In February, Mr Albanese described the $US19.5 billion proposal from Chinalco - the state-owned Aluminum Corporation of China - "as the best financial solution" to reduce debt. Rio had earlier rejected a full takeover offer from BHP.

Rio shares surged more than 8 per cent in trading on Friday and 7.2 per cent overnight on Friday in London after the company announced it had scrapped the deal with Chinalco, The Courier-Mail reports.

Instead, it will now raise $US15.2 billion through a rights issue and form a West Australian iron ore joint venture with rival BHP Billiton.

This has appeased major Rio shareholders such as Legal & General Group and Association of British Insurers, who have both issued statements praising the new share offer.

The pair had been highly critical of Chinalco's proposed purchase of convertible bonds and asset stakes because it excluded other investors.

Earlier transactions by Mr Albanese had also raised the ire of the investment community.

He took over the CEO role in May 2007, just a month before Rio made a $US38.1 billion offer for aluminum producer Alcan. That left Rio needing to make payments on its debt as commodity prices fell.

A boardroom disagreement over how to reduce Rio's debt led chairman-elect Jim Leng to resign in February. He was replaced by Jan du Plessis.

Pengana Capital fund manager Ric Ronge said there was "a significant crisis of confidence in the investment community and the board surrounding (Albanese's) decisions of late".

"He got into a problem with Alcan, and then he didn't entertain BHP and then he courted Chinalco. He is now back to doing a discount raising."

Iain Armstrong, an analyst at Brewin Dolpin in London, praised Mr du Plessis for getting Rio "out of a hole that the current management team had dug for itself".

"The positions of the CEO, and maybe the CFO, could be untenable, because of their 100 per cent backing of the Chinalco deal," he said.

At a briefing in London overnight on Friday, Mr Du Plessis said Mr Albanese was a great CEO "with the full support of the board".

Mr Albanese also defended his position by saying he had the board's support.

"We have had quite a bit of volatility in the market," he said.

"When I look at what we or any company could have done differently over a couple years' period of time, everyone would have taken different views of different things."

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