Rio Tinto sacked chief executive Tom Albanese on Thursday and revealed a $14 billion writedown almost entirely on the value of his two most significant acquisitions, the Alcan aluminium group and Mozambican coal.
An engineer who became the miner's first American boss, Albanese will be replaced by Australian Sam Walsh who heads Rio's operations in iron ore, where it is the world's second largest producer.
Doug Ritchie, the heavyweight former energy boss who led the acquisition of Mozambique-focused miner Riversdale, was also shown the door after almost three decades with the company.
New Jersey-born, Alaska-trained Albanese had until now survived the consequences of his disastrous $38 billion acquisition of Alcan in 2007, a bruising top-of-the-market deal when Rio was under pressure from rivals to bulk up or be bought.
The deal, just two months after Albanese took the reins, turned bad as markets crumbled and aluminium prices slumped, battering Rio's balance sheet, nearly forcing it into the arms of Chinese state-owned Chinalco and triggering a $15 billion rights issue. Rio has since suffered years of losses in aluminium, with Alcan adding to problems at its original business, and has taken some $29 billion in impairments.
Walsh was already in charge of the division that accounts for nearly 80 percent of profits and his appointment hints at a back-to-basics strategy as shareholders demand better cash controls throughout the mining sector.
Walsh was welcomed by investors and analysts on Thursday as a safe pair of hands, but many also questioned whether a 63-year-old veteran would be a long-term solution, raising concerns over management at a group that also announced the departure of its chief financial officer last July.
"It's another black mark in terms of (Albanese's) M&A record and I suppose, given the magnitude of this writedown ... I'm not surprised that he's stepping down with this, nor am I surprised that Doug Ritchie is," analyst Jeff Largey at Macquarie said.
Rio had planned to shrink the aluminium arm, cutting back one of the world's largest producers of the metal by hiving off most of its Australian and New Zealand assets. But industry sources say it has not been mobbed by buyers.
Further damaging his reputation as a dealmaker, Albanese spearheaded a $4.2 billion deal in 2011 to buy Mozambique-focused coal miner Riversdale, fighting off other suitors.
There, like many others in the region, Rio has struggled with the challenge of getting from pit to port, after a plan to transport coal by barge along the Zambezi river failed to get the green light. It has also been forced to cut estimates of how much coal it will be able to recover.
Rail and port bottlenecks are the main headache for miners eager to cash in on Mozambique's coal rush, but it could take a decade for many of the current infrastructure projects to come to fruition on a scale to meet industry demands.
"ALWAYS A BAD DEAL"
"(Alcan) was always a bad deal, and Albanese was lucky not to carry the can for it back in 2008," one of Rio Tinto's 10 largest investors said. "Mozambique is more of a surprise, but the industry's record on acquisitions is appalling, and Rio is not alone in destroying shareholder value."
Anglo American is facing potential writedowns linked to its Minas Rio iron ore acquisition in Brazil, a project set to cost more than three times initial estimates. BHP Billiton, meanwhile, failed to clinch three ambitious bids under its current boss - including two tilts at Rio - but then splashed out $17 billion on two shale gas takeovers in the United States just before gas prices slumped.
BHP CEO Marius Kloppers forfeited his bonus last year after BHP took a $2.8 billion charge on the value of its shale assets.
Much like Anglo, which appointed a mining engineer as chief executive earlier this month, Rio will be led by a veteran operations man who will be under pressure to boost returns to shareholders and scale back on deals.
Walsh joined Rio Tinto in 1991 after 20 years in the auto industry working for General Motors and Nissan Australia. He rose up Rio's management ranks before being appointed to head its biggest division, iron ore, in 2004.
Walsh has a more relaxed presence than Albanese, who rarely veered from the script. Albanese has long been a lover of the great outdoors who walked across remote Alaska snowfields staking mining claims after college. These days he is more often found on Britain's canals in his own narrow boat.
News of Albanese's departure and the writedown, almost as large as the group's underlying profit in 2011, took the market by surprise, knocking Rio shares in early trade. At 1340 GMT the stock was 1.5 percent lower, having been down as much as 4.5 percent earlier in the day.
"I wasn't expecting the $14 billion writedown," said Tim Schroeders, a portfolio manager at Pengana Capital, which owns Rio Tinto shares. He said the departures pointed to a company under pressure to do a better job of managing its purse strings.
"I think it's clearly a case (that) the board's laid down the law in terms of stricter accountability than we had pre-(crisis)," he said.
Rio said the writedowns include a charge of around $3 billion relating to the Mozambique business - virtually its entire original price tag - as well as reductions in the carrying values of Rio's aluminium assets in the range of $10 billion to $11 billion.
Since Rio bought Alcan in 2007, aluminium prices have fallen by a quarter but costs have soared, squeezing margins.
The group also expects to report a number of smaller asset writedowns in the order of $500 million. The final figures will be included in Rio Tinto's full-year results on February 14, along with details of more cost cuts.
"It is non-cash, it doesn't impact valuation, it doesn't impact the earnings near term," said a London analyst who declined to be named. "For me, it's clearly negative, but it's not the end of the world," said the analyst, adding that the flagship Oyu Tolgoi copper and gold mine in Mongolia was still going to plan.
Analysts at Sanford Bernstein said the writedowns amounted to 4 percent of their estimate of the company's value.
Neither Albanese nor Ritchie, who will leave in July, will take lump-sum payments, and both will forfeit bonuses on departure, including outstanding share entitlements earned in previous years.
Albanese is not the only chief executive on the way out of a major mining company. BHP has said it is seeking a replacement for Kloppers and Anglo American replaced chief executive Cynthia Carroll earlier this month.
(Additional reporting by Sonali Paul in Melbourne, Jim Regan in Sydney, Agnieszka Flak in Johannesburg, Sinead Cruise and Sarah Young in London and Brenton Cordeiro in Bangalore; Editing by Will Waterman and David Stamp)