Corus chairman Jim Leng has resigned as non-executive director of Rio Tinto, ruling out becoming the chairman of mining giant, Rio Tinto after having been named to the job less than a month ago, as differences erupted in the board on the route the company should take to reduce its huge debt of $38.9 billion.
Last month, Leng, who is also deputy chairman of Tata Steel, announced that he would step down to become the chairman of the world's third largest mining group, once its present chairman, Paul Skinner leaves in March. The miner had appointed Leng as non-executive director with immediate effect. (See: Tata Steel loses Corus chairman to Rio Tinto)
In a statement issued late last night, Rio said that Leng has resigned as non-executive director with immediate effect and would not be taking up the chairmanship of the company in April but did not cite any reasons for the sudden resignation.
It also said that the present chairman Paul Skinner, who had announced his retirement from the board of Rio Tinto and was rumoured to take over the reins of the oil giant, British Petroleum, on the retirement of Peter Sutherland in April, will remain as chairman until mid-2009, so that a new successor could be appointed.
Analysts view the sudden resignation of Leng as differences with Rio's chief executive Tom Albanese along with certain board members, on the route the miner should take to reduce its huge debt of $38.9 billion.
In December, Rio Tinto, had said that it will axe more than 14,000 jobs globally, slash $5 billion in spending and increase asset sales as part of an aggressive cost cutting campaign to reduce its debt by $10 billion from the then $42 billion by the end of 2009. (See: Major shake up at Rio Tinto to reduce debt)
The $42-billion debt as of December was accrued from the takeover of US-based aluminium producer Alcan, announced in July 2008 and the miner had to make its debt repayments of $8.9 billion in October 2009 and an additional $10 billion the following year.
After having sold some assets last month, Rio had reduced its debt from $42-billion in December to $39 billion.
Late last month, Rio, which is considering a range of options to reduce its massive debt by $10 billion from $39 billion in the current year, was reported to be seeking a multi-billion dollar capital injection from Chinese aluminium maker Chinalco, through assets sale to sovereign wealth funds and Chinalco and if both fail, then a $6-billion equity issue. (See: Rio Tinto mulls multibillion infusion from Chinalco; $6 billion issue)
Some important shareholders in Rio had threatened to remove the entire management team, if the miner went in for an equity issue.
But Rio's problems were compounded as trying to sell some of its strategically important assets that hold some of the best reserves in the world in iron ore, coal and aluminium to any Chinese company or Chinalco, which already has a 9-per cent stake in Rio, would invite controversy as the Australian government may not allow the sale to go through.
It is reported that the miner has raised its stakes from $6-billion it was seeking to raise earlier to as much as $20 billion now, either through a rights issue or selling a minority stake of 9 per cent through the sale of convertible bonds to Chinalco, where the Chinese aluminum company may get board representation in Rio Tinto.
It is rumoured that the deal, favoured by Albanese to sell a minority stake to a Chinese company where it will get representation on the board has not gone down well with the chairman-designate Jim Leng and a few other board members which has led to him resigning.
Chinalco, which already has a 9-per cent stake in Rio and by giving it an additional 9-per cent, the board will bring the company in direct confrontation with the Australian government who has imposed a ceiling on Chinalco's ownership of Rio at 11 per cent, as it fears that the Chinese may corner some the country's prized iron ore and coal assets.
Rio is also reported to talking with Japan's Mitsui & Co for a possible sale of some of its assets in a deal worth nearly $5 billion and is also talking with Australian packaging firm, Amcor to sell some of its packaging units.
The UK-based Sunday Telegraph reported that BP has approached the chairman of National Grid PLC (NGG), John Parker, to take on the job of chairman of BP in April when its current chairman, Peter Sutherland will step down and the appointment of Rio's Paul Skinner does not come through.