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Far-sighted strategies: Leigh Clifford sees the future

AUTHOR: Deborah Tarrant   DATE: 08.12.05   ISSUE 3, 2005

In part this is due to the cyclical nature of the mining and resources business, Mr Clifford told AGSM MBA students during a candid Q&A session with Dean Robert McLean recently. “If you go for a short-life mining business and you’re only involved for five to eight years, you might catch two of the dips and only a little bit of the peak, so long life is important.”

Evidence that this long-term approach pays off is in the results. Rio Tinto posted its best ever results for the first half of 2005.

Illustration: Gregory Baldwin

When evaluating new projects, such as Rio Tinto’s new titanium operation in Madagascar, a long-term – 40-year mine life – perspective is essential. “It’s going to take us three and a bit years to get up and going, followed by two more stages of development. We’re eventually going to take this up to being one of the major suppliers of titanium stocks, well placed to supply China and the growing market there…”

With its long-range perspective, the company has declined projects evaluated as unlikely to fit with its timeframe objectives.

The longer viewpoint also aligns with its aspiration to be “the best at value creation in our business”. Value creation, according to Mr Clifford, is about far more than generating shareholder value. It taps into a wide range of broad sustainability issues including safety standards and corporate social responsibility. In fact, Rio Tinto on occasions has pushed back against shareholder pressure for fast growth when it risked making a potentially value destroying decision, he said.

Resource companies need to recognise their impact and “meet the increasing expectations of the community in terms of environmental impact, engagement with the community and the money that comes back into that community.”

It’s not enough to pay taxes that flow to capital cities, but the benefits must flow “to the immediate community in which you are operating and have an impact on its regional infrastructure”. “You have to think about job opportunities and the rings of influence that extend beyond that,” Mr Clifford emphasised to the students.

For example, in northern Australia where Rio Tinto operates a number of mines that are significant investments, the company has focussed on the local indigenous communities, lifting educational standards and up-skilling to enable community members to be employed. As a result, indigenous people now represent 30 percent of employees at its diamond mine operations in Argyle and just less than 20 percent in its bauxite operations in Weipa in Cape York.

Resource companies need to recognise their impact and “meet the increasing expectations of the community in terms of environmental impact, engagement with the community and the money that comes back into that community.” Leigh Clifford

The mining industry is not good at explaining the value it brings to communities. It’s not enough to say “we’re doing the right thing,” Mr Clifford insisted. “People want some involvement with external parties.” Consequently Rio Tinto has formed a wide spectrum of conservation groups and, in some instances, has found positive acceptance for the role economic development can play in helping to preserve unique environments.

Rio Tinto’s reach into communities is extending. With operations that began in Australia in 1873, now spread through Europe (including the United Kingdom), North and South America, southern Africa and parts of Asia, the company is currently exploring in India, Turkey, Iran, Mauritania, Chad, the Congo and Russia. With its sights set on “robust projects”, integral to its successful value creation strategy is not trying to be good at everything. “We’re not trying to colour in the periodic table…What we’re after are low-cost, long life ore bodies.”

Evidence that this long-term approach pays off is in its results. Rio Tinto posted its best ever results for the first half of 2005. Underlying earnings of US$2,087 million were double those of the previous year. Analysts attributed the record earnings to its consistent operational performance, delivering record volumes of most products into strong markets.

The world’s third-largest miner has announced major growth of its West Australian iron ore operations to feed the fast-rising demand from China. It will spend US$1.35 billion on a two-year expansion of its wholly owned Hamersley Iron’s Yandicoogina mine and Dampier Port in the Pilbara region.

It’s not enough to pay taxes that flow to capital cities, but the benefits must flow “to the immediate community in which you are operating and have an impact on its regional infrastructure”.

Mr Clifford who originally graduated as a mining engineer from Melbourne University and has a Masters degree in engineering science became the London-based Chief Executive of Rio Tinto in 2000. Prior to his appointment he was Managing Director of the company’s Australian operation in Melbourne.

As he outlined at a recent annual general meeting, one of his goals for the company is “to ensure that it attracts and develops capable leaders and, in particular, that I build a team to lead the company in the years to come.”

To this end, Rio Tinto is committed to a series of progressive leadership programs beginning with emerging talent and running through to company-specific tailored programs for its most senior business leaders. This includes a program to develop senior managers and general managers run by AGSM and Duke University in the US. The company also focuses on improving the commercial acumen of its line operators.

Mr Clifford spent six years working underground which, he attested, gave him a strong appreciation for the issues at the sharp end of the business, but his stand on the importance of providing opportunities for young managers has been influenced by his own professional experience, being promoted to an accountable, senior management role at a relatively young age.

Organising and structuring a global business with 35,000 employees to factor in new – and often remote – projects, has meant adopting a company-wide approach to ensure employees are empowered and every level of management can add value. “Our businesses around the world share structures that reflect this,” he said.

With six global product groups, Rio Tinto has 25 accountable divisions. However, there are complexities within a 24/7 global resources business. Frontline managers are given responsibility for industrial relations decisions. Immediate managers also are responsible for team performance, identifying talent and assessing potential, but they are not the sole judges. Human resources also plays an important role in fast-tracking talent and leadership development in an industry that was one of the first to feel the global talent squeeze.

Rio Tinto is committed to a series of progressive leadership programs beginning with emerging talent and running through to company-specific tailored programs for its most senior business leaders.

Asked to describe his own leadership style, Mr Clifford said he believed he was participative and numbers focussed. “I like to think precipitantly when things aren’t clear cut.”

Integrity is imperative. “If it feels as though you ought to be standing up and saying mea culpa, you ought to be doing it,” Mr Clifford advised. As he had noted earlier, the transparency of working for one company for 35 years meant that everyone remembers your mistakes. “You have to ‘fess up to them,” he quipped.