Page last updated at 15:12 GMT, Monday, 9 February 2009

Rio chairman-elect quits board

worker inspects iron ore
The economic downturn has delayed sales of assets

Mining giant Rio Tinto has announced non-executive director Jim Leng will not be taking over the chairmanship after he quit the board.

Mr Leng was named Rio's next chairman three weeks ago and he had planned to take over from current chairman Paul Skinner after April's annual meeting.

But Mr Leng resigned after disagreeing with the board about how Rio should tackle its $39bn (26bn) debt.

It is believed he may also have been against a deal with China's Chinalco.

Mr Skinner will remain chairman until mid-2009 while Rio finds a successor.

Disagreement

The news is a blow for Rio which is trying to reduce its $39bn (26bn) debt by $10bn this year.

It is thought that Mr Leng objected to a potential deal between Rio and China's largest aluminium producer Chinalco, in which Rio would sell it convertible notes and some assets.

While Mr Leng did not specifically mention Chinalco in his statement, many are convinced this is the reason behind his departure.

One source said Mr Leng objected to the deal with Chinalco on the grounds that it would restrict Rio's long -term strategic options.

Rio has shed a number of jobs and cut production at some mines, and is trying to sell assets to reduce debt but the economic downturn has delayed sales.

It has been under additional pressure to address its debt as BHP Billiton's hostile takeover bid was abandoned in November.

But some analysts have said that Mr Skinner's remaining in the chairmanship could smooth the eventual hand over.

"Paul Skinner staying on longer could be a positive as Rio is not yet through its turmoil," said Constellation Capital Management analyst, Peter Chilton

"It's yet to deal fully with its debt, iron-ore negotiations are going on and things have yet to settle down."

Green light?

Other experts believe Mr Leng's departure means Rio can plough on with the urgent restructuring of its debt.

"If he was against the Chinese deal, then theoretically they'll get consensus on the board and push it through," said Evolution Securities analyst, Charles Kernot.

Mr Leng himself said that his decision to leave would "enable the board to reach a consensual decision" about how to resolve its debt.

On Monday Chinalco vice president Lu Youqing confirmed the two companies were still in talks. There is growing speculation a deal will be sealed by Thursday when Rio will report its annual results.

Chinalco, together with Alcoa, bought a 9% stake in Rio a year ago and is Rio's biggest shareholder.

Rio is also thought to be mulling the sale of a 75% stake in Coal & Allied Industries to Japanese trading group Mitsui.



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