Opinion: Rio Tinto CEO Jakob Stausholm may have to change strategy as company enters new round of upheaval

Extrovert or introvert, buyer or builder, opportunistic or judicious. These are the existential questions that Rio Tinto RIO-N must answer for itself as the global mining industry enters a new round of upheaval, driven by the lunge for metals critical to a low-carbon future.

Which way will Rio, a primarily iron ore and aluminum producer, go?

No one knows, and there are enormous risks in both playing the mergers and acquisitions game and avoiding it. Rio knows it needs more copper – it is ranked a lowly eighth in terms of production. At the same time, its reputation for capital discipline and conservative thinking might make it shy away from bidding wars and hostile deals, perhaps even big mergers and acquisitions of the friendly variety.

Note that Rio avoided pursuing copper-heavy Anglo American after BHP Group, in April, put Anglo into play. If there were one company with the heft to compete with BHP, the world’s biggest mining house, it would have been close-second Rio. The former, whose shares trade in Sydney, has a market value of US$150-billion. The latter, listed in London, is worth US$120-billion.

Jakob Stausholm, Rio’s chief executive since 2021, seems content to stick with his strategy of pursuing organic growth, bolting on a few smallish companies here and there (as he did last year with the purchase of half of aluminum recycler Matalco of Brampton, Ont.), improving the company’s operating efficiency and project-management skills, and repairing the company’s blighted ESG (environmental, social, governance) record – no small task.

In 2020, Rio became an ESG pariah when it blew up parts of a sacred Aboriginal cave site in Western Australia to expand an iron ore mine. The caves had shown evidence of human life going back 46,000 years. Blasting the site to pieces – what was lost can never be replaced – reinforced the image that Big Mining often puts profits first, no matter the consequences.

The question is whether Rio will be forced to break from character and pursue ambitious M&A to vault it to the forefront of the critical minerals race, or watch the likes of BHP, Anglo, Glencore and, to a lesser extent, Canada’s Teck Resources, occupy the lead positions.

“We are not afraid of M&A,” Mr. Stausholm told me over breakfast in late May in London. “We would like to be bigger in lithium and copper but only if we can create value doing so.”

That response was open to interpretation – maybe yes to M&A, maybe no. But mining industry watchers, among them Angus Aitken of Australian investment firm Aitken Mount Capital Partners, thinks Mr. Stausholm needs to make a bigger splash in critical metals to remain relevant as net-zero deadlines loom. “I agree that he doesn’t seem to want to do mega deals like buying Anglo or Glencore,” he said. “But he needs to do something big in copper or lithium.”

Mr. Stausholm has a low profile among the bosses of the Big Five mining houses – BHP, Rio, Glencore, Vale and Anglo. But the man is hard to miss in public. He is cornstalk tall and slim, standing almost 6 feet 6 inches, with dirty-blond hair.

And he is fit. We started the interview like no interview I had done before. From social media, he learned that I am a cyclist and suggested we meet at 7 a.m. in front of his carriage house in Mayfair, one of London’s poshest neighbourhoods, for a prebreakfast pedalling session. We MAMILs – middle-aged men in Lycra – blasted through Mayfair and Knightsbridge on our expensive racing machines (mine was a loaner from the local Pinarello shop) on the way to Richmond Park, where we did two 11-kilometre loops. He was faster than me, especially on the climbs.

During our circuit, where we sped by deer and green parrots, I picked up a few details of his life. He is 55 and was born a few dozen kilometres from Copenhagen. He studied economics at the University of Copenhagen and had long stints in finance at Shell and Maersk, the world’s largest container ship company, before joining Rio as chief financial officer in 2018.

Three years later, he succeeded the Frenchman Jean-Sébastien Jacques, who did not survive the Aboriginal caves fiasco, as CEO. He works closely with Dominic Barton, the former Canadian ambassador to China and McKinsey and Company consultant who became Rio’s chairman in 2022.

“Jakob’s a big-picture guy,” Mr. Barton said. “He knows that we needed to fix the fundamentals, and we’re seeing that through consistent operating performance and our social licence. But he will also make bold decisions that will ensure Rio is a major player in the energy transition. I like that he’s not distracted by what everyone else is doing.”

Mr. Stausholm and his wife, Charlotte, own houses in London, Copenhagen and Majorca, the Spanish island in the Mediterranean known as a cyclist’s haven. They have three grown children. Their Mayfair house is no palace and is simply furnished. His Trek racing bike shows its age. In 2023, his total compensation came to £8.4-million, fairly modest by supersized company standards on either side of the Atlantic. He owns fewer than 100,000 of Rio’s 1.6 billion shares.

He walks to work. Rio’s headquarters are in St. James’s Square in Westminster, across the park from Teck’s London outpost. He travels constantly and Charlotte sometimes joins him lest they become total strangers.

Rio has no businesses in continental Europe, which means long flights; the company has no jets of its own. Among the company’s biggest operations are those in Australia (iron ore), Canada (aluminum, through the former Alcan of Montreal, and iron ore in Labrador), Mongolia (copper, through its 66-per-cent ownership of the vast Oyu Tolgoi mine), Utah (copper, gold, silver), and Guinea (where, with Chinese partners and the Guinean government, it owns Simandou, the world’s biggest untapped reserve of high-grade iron ore). These operations, and many others, last year collectively produced after-tax profits of US$10.1-billion on sales of US$54-billion.

In an industry known for its hard-charging, risk-taking, even roguish bosses – Mark Bristow of Barrick and former Glencore strongman Ivan Glasenberg come to mind – Mr. Stausholm stands apart.

He is affable but restrained in manner and speech. He doesn’t speak critically of any of Rio’s peers, even BHP, which last month thoroughly botched its £39-billion takeover attempt of Anglo. He seems as excited about ESG and upgrading Rio’s work culture, safety measures and decarbonization campaign – “We did not have the public perception that we should have had” – as he is in making resolute statements about his company’s strategic direction and ability to thrive in a world electrifying fast through vast numbers of electric vehicles, batteries, wind vanes, solar panels and transmission lines. All these products require vast dollops of copper and other costly energy-transition metals. And, yes, also steel from iron ore and aluminum; the latter is considered a critical metal.

After our ride, at a café directly across from his house, Mr. Stausholm downed egg-topped avocado toast, orange juice and a “skinny milk” cappuccino.

He spoke about his admiration for Rio’s operations in Canada, with about 13,800 employees – mostly in aluminum (Rio supplies the aluminum for Ferrari sports cars) – making it Canada’s largest metals and mining business. In Canada, the company also produces iron ore, titanium and diamonds, and operates eight hydro power plants. He thinks Canada’s abundant supply of renewable energy will make the country a sought-after destination for mining and smelting projects. “Canada can play a bigger role in this industry and we would be delighted to invest more in the country,” he said.

I grilled him on critical metals and whether Rio was best positioned to play the low-carbon game as governments, even those of the right-wing variety, roll out net-zero plans. He gave no easy, set answers.

Rio is one of the very largest producers of iron ore, the largest producer in the Western world of aluminum – the company last year announced a $1.4-billion investment to increase low-carbon aluminum production in Canada at its AP60 smelter – and is about to start battery-grade lithium production in Argentina. Its Oyu Tolgoi copper mine in Mongolia is ramping up production. “I wouldn’t mind growing in all three areas of these metals,” he said. “A year ago, everyone was very excited about lithium. Today, everyone is very excited about copper.”

Copper – the hot metal of the moment – seems the one commodity Rio could use more of. The question is whether organic growth alone will drive it into the copper big leagues, or whether Rio will have to seek a shape-changing merger, takeover or restructuring to get there. Two of the biggest takeover efforts in the mining world since last year, Glencore for Teck and BHP for Anglo, were largely copper lunges (both failed, though Glencore landed Teck’s metallurgical coal division as a consolation prize).

So far, it seems that Mr. Stausholm will pursue the in-house route. “What we are doing is trying to strengthen our organic abilities, our ability to develop projects,” he said. “It might take you a bit longer to get there, but you might be able to get there cheaper organically.”

The strategy may or may not work as more aggressive companies scour the planet for copper companies or individual mines, both in pretty short supply, which are easier to buy than build. Eventually, one or two of copper’s middleweights or heavyweights will stop playing hard to get. Teck, shorn of its coal assets, might be open to a deal, although, at the moment, no natural points of collaboration seem to exist since Teck has partners in most of its copper projects. Africa-focused Ivanhoe Mines of Vancouver, whose top shareholders are Chinese entities, might be tempted to partner up as copper prices soar.

“I know one thing,” said Mr. Aitken. “These companies would rather do a US$10-billion or US$15-billion deal, not a US$500-million deal.”

There is a scenario that says Rio must do a significant critical-metals deal to protect itself from possibly flat or falling iron prices if Guinea’s massive Simandou project, which Rio does not control, pumps vast amounts of iron ore on the global market, which it is expected to do, and China continues to dominate aluminum smelting, squeezing the competition. Greater diversity could help insulate Rio from the fallout from those possible outcomes.

Mr. Stausholm must be under pressure to boost Rio’s exposure to critical metals even if he exudes confidence about the company’s current trajectory. Pressure because more than a few diversified mining companies are taking bold, even radical, steps to achieve greater exposure to energy transition metals. BHP went after Anglo; Glencore went after Teck; Anglo is now essentially dismantling itself – it wants to unloads its diamonds, steelmaking coal and platinum businesses – to focus on critical metals. Brazil’s Vale, a big player in iron ore and nickel, wants more copper.

And Rio? So far, there are no plans to restructure the company. “I know that big M&A can be very disruptive for the organization and I think we are in a very important transformative phase, including resetting our culture, and I do not want to see that being destabilized,” Mr. Stausholm said.

Rio did not reach the No. 2 position by bungling its strategy and operations. But Big Mining has changed since Mr. Stausholm became the boss three years ago. The transition to a low-carbon economy is picking up momentum, and Rio’s focus on aluminum and iron ore may take it only so far as the net-zero world approaches. A bold move may yet come.

“Aren’t we all in play?” he said, implying that no strategy is off the table at Rio.