Davis’s background obstructs Rio move

More than 250,000 people work for the big four UK-listed miners. The cadre of executives who tell them what to do is “the smallest club in the world”, according to one insider. Even so, the news that Mick Davis is in the running to become chairman of Rio Tinto is a surprise. Is he right for the job?

His appointment would certainly represent recycling in action. Davis was jettisoned from Xstrata when Glencore bought this FTSE 100 miner in 2013. His acquisition vehicle X2 failed to make any acquisitions and released investors from their commitments in 2016.

Still, Davis generated returns of 660% over 10 years at Xstrata. Lex would credit him with building that company from the ground up had it not been in the business of digging holes.

He is a canny judge of deals and Rio needs to diversify out of iron ore. In 2016, red rocks produced 63% of the group’s $13.5bn in total earnings before standard deductions, according to S&P Global. When iron ore struggles, so do Rio shares.

Rejecting bad transactions will be as important as the approval of good ones pursued by Jean-Sébastien Jacques, the hard-nosed new CE. Skeletons in Rio’s closet include buying Alcan in 2007 and Aussie coal miner Riversdale in 2011. Davis’s own back story is an impediment to his appointment, though. He once stood to gain £29m for staying on after the Glencore takeover. Shareholders then voted down retention payments for Xstrata bosses. But the furore would make him an odd standard bearer for corporate governance at Rio.

The hire would send a less ambiguous message to Glencore boss Ivan Glasenberg. The Xstrata extravaganza in 2013 soured his relations with Davis. Jan du Plessis, current chairman of Rio, rebuffed merger overtures from Glencore a year later. If Du Plessis stepped down in favour of Davis, it would leave behind a deterrent to a takeover. London, November 14.