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Company’s governance structure
The Board of Directors oversees the operations of Rio Tinto. They delegate the daily management roles to the Executive Committee and the company’s chief executive. The shareholders may nominate an Executive Director to the Board of Directors or the Nominee Committee may pick an Executive Director to join the Board.
The institution also consists of the Sustainability, Audit, Remuneration, Nominations, and the Chairman’s Committees. The Management plays an administrative role and entails; the Investment, Procedures and Disclosure, and the Executive Committees (Rio Tinto, 2013).
Strategies aligning stakeholders’ interests
A capital of about $5.2 billion is required from investors into the venture and thus a share issue is inevitable. The company plans to maximize output by investing in low-cost mines as well as commitment to optimize available capital by directing resources into projects with highest returns.
Re-opening the Panguna Mine
Rio Tinto considered the balance between the ore’s size estimates versus the amount of capital required to restart the project. Feasibility study has pointed towards approximately 16 million ounces of gold and 4.6 million tons of copper. Another consideration is how investors will channel $5.2 billion into the venture. Additionally, the management considers the reception they expect to get in the region considering the uprising that led to a loss of estimated 20,000 lives in 1989. The management also seeks to follow government policy therefore will need an approval from relevant authorities to start its operations.
Type of Management Decision and Financial technique
The type of decision-making involved in the business is non-programmed and strategic. The decision is complex and crucial and important to the business, hence non-programmed. Strategic decisions have a long-term implication for the business and involve enormous sum investment into the business, mainly to expand the business focus. The decision-making process is the role of the senior management of the company.
The company involves a financial technique based on the external analysis of the business, rather than the internal factors like the cash flow, liquidity and performance of the business. The company’s profitability deteriorated, from 2010 $19.608 billion in operating profits to $2.576 billion in operating losses in 2012. Loss accumulation results in a cash flow deficit in the company. The management does not put these factors into consideration. On the contrary, they incline their decision to external factors like the political dynamics of the region and other environmental factors (Khan, 2013).
The impact of the decision to the share price
Rio Tinto’s share price will decrease as a result of the decision. The decision involved has a high-risk due to previous outcomes of the civil war that led to the shutdown of the company in 1989. Additionally, the deterioration observed in the company’s financial performance is also alarming to the shareholders. The change of equity in the company’s annual report could be indicating continued withdrawal of the shareholders from the company.
The shareholders’ equity totaled to $64.512 billion in 2010, 59.208 billion in 2011 and 58.021 billion in 2012 (Rio Tinto, 2013). The trade deficit in major economies has also raised a recession alert. The projected economic recession could lead to decrease in the company’s value of shares (Denning, 2013). The company could also receive some hostile reception due to the previous civil wars. Such uncertainties will scare investors, leading to a drop in the share price. However, risk takers are likely to gain a lot when the project succeeds.
Denning, D. 2013, Recession Alert for the Australian Econom,. Web.
Khan, M W A. 2012, Financial Analysis Techniques & Tools Which Are Designed For Analyzing The Market & Invest Right Way For Maximized Profit. Web.
Rio Tinto 2013, Rio Tinto 2012 Annual Report. Web.
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