Mergers and acquisitions (M&A) are strategies that help companies to grow in size rapidly. However, some incredibly questionable M&A decisions were reported in the mining industry in 2012 and 2013, including the following:

• The Canadian gold mining company Kinross Gold Corp. acquired some African mines when it purchased Red Back Mining Inc. for \($7.1\) billion in 2010. In 2012, Kinross wrote off \($2.5\) billion of its investment in Red Back and an additional

\($3.2\) billion in 2013 as the costs of developing these African mines increased.

• In December 2012, Vale SA, the Brazilian metal and mining company, wrote down the value of a mine in northern Brazil by \($2.85\) billion as operating costs soared. The book value of the investment as of September 30 was \($3.78\) billion.

• In May 2013, Glencore, the Swiss mining giant, paid \($44.6\) billion to merge with Xstrata. Three months later, in August, the company wrote down its investment in Xstrata by \($8.8\) billion as a result of a decrease in commodity prices.

• The \($14\) billion write-down taken in January 2013 by the British-Australian multinational mining giant Rio Tinto is described below.

In January 2013, Rio Tinto recorded a

\($14\) billion write-down of its assets, including a \($10\) billion write-off of its \($38\) billion investment in Alcan and a \($3\) billion writeoff of its \($3.7\) billion investment in Riverside Mining. The company also announced that Tom Albanese, who had been CEO since 2007, would be stepping down, as would Doug Ritchie, head of the energy division, who had overseen the purchase of Riverside Mining. In 2007, when aluminum was trading at its peak of \($1.20\) per pound, Rio Tinto paid

\($38\) billion to acquire Alcan, a Canadian aluminum company. At the time of its acquisition, Albanese said that Alcan would have a competitive advantage because of its low-cost hydroelectric energy. He also predicted that China would be a net importer of aluminum. Instead, low-cost producers using cheap thermal coal sprung up within China, and China became selfsufficient in aluminum, which contributed to the price of aluminum falling to as low as \($0.76\) per pound. It subsequently rebounded to \($0.91\) per pound.

The 2013 write-down was the second time Rio Tinto had reduced its investment in Alcan, bringing its investment in the aluminum company down to \($18\) billion. In 2011, Rio Tinto bought a majority interest in Riverside Mining Ltd, which that operates coal mines in Mozambique. Its mines have been plagued with transportation and logistical problems. Rio Tinto has now written down that investment from \($3.7\) billion to \($700\) million.

Along with the announcement of the write-downs, the company also said that neither Doug Ritchie nor Tom Albanese, who had been with the company for thirty years, would be receiving any performance bonuses. Albanese does, however, get to keep £10.7 million of stock options that were awarded to him from 2003 to 2007.

Questions:-

1. Should the CEOs of these mining companies be held accountable for commodity prices that have dropped precipitously while operating costs have soared?
2. Should Albanese be held responsible for the fact that the Chinese market did not open as he predicted and that the price of aluminum drop precipitously?
If not Albanese, then who should be held responsible?
3. Because of the \($14\) billion write-down, should Albanese be forced to forfeit his lucrative stock options?
4. Alcan was purchased in 2007, and there were two subsequent write-downs, reducing its value by more than half of its original purchase price. But Albanese did not resign until 2013. Was this resignation too late? When should a board of directors fire a CEO who has made a significant mistake?
5. The Rio Tinto executives made massive errors in judgment that cost the company billions. Were they treated too gently?
6. Since several companies have written off massive amounts paid for their acquisitions, were each of their managements wrong for specific reasons, or were there common factors affecting them all? If so, what were they?