Who will take the helm of the world's largest iron ore miner? Rio Tinto plc Sponsored ADR (RIO.US) new leader is rumored to need the dual genes of "mergers and acquisitions" and cost reduction.

According to two informed sources familiar with the board's priorities, Rio Tinto plc Sponsored ADR (RIO.US) is set to announce a new CEO this month who will not only need to significantly increase production efficiency and implement cost reductions but also have the courage to drive transformative mergers and acquisitions. The world's largest iron ore producer abruptly announced in May that current CEO Jakob Stausholm will step down after a four and a half year term, and is currently in the final stages of the internal and external selection process. Two other sources familiar with the selection process stated that the final candidates will present to the board in London this week. One source stated that the appointment decision could be announced as early as late July. Previously unreported, chairman Dominic Barton's expectations for the new CEO include a willingness to drive large-scale transactions, as well as the timing of this board presentation. According to reports in May, internal candidates include Simon Trott, who has been in charge of the iron ore division since 2021, Chief Commercial Officer Bold Baatar, and Aluminium Division head Jerome Pecresse. A fifth source revealed that Chief Technology Officer Mark Davies is also among the candidates. All sources requested anonymity as the selection process is confidential. Rio Tinto plc Sponsored ADR is scheduled to release its half-year report on July 30 and has declined to comment on the matter. Barton and the four candidates have not responded to requests for comment. Major M&A Opportunity Since the announcement of Stausholm's departure, Barton has been consulting with stakeholders on this unexpected change in leadership. Two sources familiar with the chairman's recruitment strategy stated that Barton has proposed a "major merger" with another mining giant if sufficient value is found. According to sources familiar with the matter, Glencore (GLNCY.US) contacted Rio Tinto plc Sponsored ADR last year regarding potential asset portfolio matters but did not progress further due to Stausholm's opposition. Some analysts believe a merger with Teck Resources (TECK.US) may have greater synergies. The new CEO will face a dual challenge: not only to strictly control costs but also to drive the group towards strategic transformation in the copper mining sector - with the advancement of energy transition, demand for copper is expected to surge. Two individuals who have attended Barton's briefings stated that the company internally recognizes that operational costs, including manpower, are too high and require a leader skilled in cost control. Financial reports show that from 2020 to 2024, Rio Tinto plc Sponsored ADR's costs increased by 46.5%, faster than BHP Group Ltd Sponsored American Depositary Receipt Repr 2 Shs (BHP.US) and Anglo American PLC (NGLOD.US), indicating that the new leader must strengthen capital allocation discipline. Royal Bank of Canada Capital Markets estimates that Rio Tinto plc Sponsored ADR faces capital expenditures of $30-35 billion over the next ten years, including an $8-9 billion investment in lithium mines in Chile made by Stausholm in May. Analyst Kaan Peker stated, "Although Stausholm has stated that he will focus on developing the lithium business, it would not be surprising if some lithium projects make way for copper mines." Peker believes that the likelihood of an acquisition in the short term is low because the new CEO must first boost the stock price to obtain optimal conditions in a stock-for-stock acquisition. Limitations of the Candidates One source familiar with the CEO selection process stated that there is a preference for internal promotions within the company. However, analysts and investors point out that all the top candidates have limitations in operational optimization and cost reduction, and it is uncertain whether internal candidates can effectively resolve issues such as safety production in Guinea and allegations of sexual harassment in Australia. Trott led the final production increase at the Gudai-Darri mine site, pushing iron ore shipments to a second-highest historical level in 2023 and launching new alternative projects. He also handled sensitive indigenous heritage issues after the destruction of the Juukan Gorge caves in 2020. However, since Trott took office in 2021, Rio Tinto plc Sponsored ADR has consistently been the highest-cost iron ore producer in Australia, with a decline in ore quality and a lower production forecast this year due to hurricane impacts. Glyn Lawcock, an analyst at Barrenjoey, stated, "The past four years have been full of challenges. Although business turned around in 2023, the Juukan Gorge incident and extreme weather made the situation exceptionally difficult." Baatar, who led Rio Tinto plc Sponsored ADR's copper business (including the Mongolian Oyu Tolgoi mine) for three years, faces challenges in government relations. Although Stausholm reached a $2.4 billion debt forgiveness agreement with Mongolia in 2022, Rio Tinto plc Sponsored ADR had to modify its mining plan last month due to a delay in mining licenses. According to a source familiar with the selection process, Pecresse has received some favor from the board for driving a 61% increase in pre-tax depreciation profits in the aluminium division by 2024. Joining in October 2023 from GE Aerospace's renewable energy business, he significantly expanded global operations, but the department continued to incur losses before his departure. While Davies' productivity improvement plan helps reduce costs and increase efficiency, he only manages a small-scale marine and titanium division, lacking experience in the major business sectors. Analysts generally believe that the likelihood of an external candidate is low. Previously, Newmont Mining (NEM.US) CEO Tom Palmer and former Oz Minerals CEO Brendan Harris were considered potential external candidates. Investors also mentioned that Sandfire Resources (SNDFY.US) CEO Brendan Harris may also be considered, but he did not comment.