The RTZ Corporation PLC

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The RTZ Corporation PLC

6 St. James’s Square
London SW1Y 4LD
United Kingdom
(071) 930-2399
Fax: (071) 930-3249

Public Company
Incorporated: 1962
Employees: 73,612
Sales: £5.08 billion (US $9.81 billion)
Stock Exchanges: London New York Paris Frankfurt Amsterdam Brussels Zurich Geneva Basel

The RTZ Corporation PLC is the holding company for the RTZ Group, an international U.K.-registered mining company with important assets in natural resources and related industries. Its principal areas of operation are North and South America, Australasia, southern Africa, and Europe. The main RTZ subsidiary and its associated companies are engaged in the discovery, evaluation, financing, marketing, developing, mining, and processing of a wide variety of mineral resources. It has been the policy of the group, since its formation in 1962 through the merger of the Rio Tinto Company (RTC) and the Consolidated Zinc Corporation (CZ), to invest only in first-class mining properties with large reserves and low production costs. RTZ has accumulated rich assets with a broad geographic spread, with the aim of providing stability against a background of often-violent economic and political movements. Both the RTC and CZ were formed during the years between 1870 and 1914, when London rose to prominence as the hub of international mining and metallurgical activities. The number of overseas metal mining and processing companies listed on the London Stock Exchange climbed from 39 in 1875 to 913 in 1913, with the long-term capital employed in the industry rising at an average annual rate of more than 8% over the same period. In the City of London, for every prospective mine or group of mines, a new operating company would be created. A syndicate composed of City interests—specialist company promoters, bankers, stockbrokers, merchants, mining engineers, and others—would purchase a concession from a foreign vendor or exploration company, and a mining company would be formed to purchase the concession from the syndicate. Syndicates usually profited from the sale of the concession, and from securing contracts for financial or other services.

When launched in 1873, the RTC was by far the biggest international mining venture ever brought to market, and it remained the flagship of the British-owned sector of the international industry until well into the 20th century. The Rio Tinto mines, in the province of Huelva in southern Spain, had produced large quantities of copper, on and off, since before Roman times, most recently under the ownership of the government of Spain. In 1872, following a series of financial losses, the mines were offered for sale at a price equivalent to several million pounds sterling. The Spanish government was in a financial crisis and did not have the cash or the expertise needed to exploit the large reserves of cupreous pyrites known to exist at Rio Tinto. Substantial investments were needed to introduce opencast mining, and to build workshops, tramways, crushing and metallurgical plants, a railway from the mines to the seaport of Huelva, a shipping pier, and the many other works necessary to operate on a large scale.

The availability of the mines was brought to the attention of Matheson & Company, the London-based agent for the Far Eastern merchants Jardine Matheson, by Heinrich Doetsch of Sundheim & Doetsch, a general merchant of Huelva. Doetsch had the foresight to see that if the Rio Tinto mines were developed to their full potential, his business eventually stood to gain from a large increase in trade. A syndicate to purchase the Rio Tinto concession was organized by Hugh Matheson, senior partner in Matheson & Company, in London. The mines were purchased by the syndicate for £3.7 million, over a period of nine years, and immediately sold to the RTC. The new company was floated on the London Stock Exchange with an issued share capital of £2 million and debentures valued at £600,000. Hugh Matheson was appointed as first chairman of the RTC with Heinrich Doetsch as his deputy.

Matheson remained chairman of the RTC for a quarter of a century until his death in 1898. Matheson was a shrewd dealer in commodities, an outstanding entrepreneur with an ability to think on a scale that few could match, and a natural leader who could win the support needed to build very large enterprises in distant lands. The formation, survival, and ultimate prosperity of the RTC was the crowning achievement of his life. Matheson held together the original German and British banking, trading, and engineering consortium formed to launch the RTC in the crisis that followed the issue of its prospectus. The claims made in this document, especially the report of the mining engineer David Forbes, were vigorously denounced by the Tharsis Company, a Scottish-based firm set up in 1866 to work a group of mines not far distant from those at Rio Tinto. It was alleged that Matheson and his associates had falsely inflated potential revenues and grossly underestimated development and operating costs. The new company, it was said, could never earn a positive rate of return on the huge capital it was seeking to raise from investors. Matheson launched a massive press campaign, an early example of skillful public relations, and he won the day.

The Tharsis assault, however, did do some damage, and this was further compounded by a three-year price war between the two companies. The pyrites mined in southern Spain and in Portugal were first burned to drive off the sulfur content. The sulfurous gases were used to make sulfuric acid, one of the fundamental products of the chemicals industry. The burnt ore from the chemical works was then treated to remove the copper and other valuable metals it contained. The iron cinders that remained were sent to iron works for smelting. During these difficult years, revenues were low and development costs were running at more than £100,000 per month. The purchase agreement with the Spanish government was renegotiated on more favorable terms, the company was financially restructured, and additional funds were raised through the issue of mortgage bonds. Eventually, in 1876, a favorable price-fixing and market-sharing agreement was made with Tharsis, and the prospects for both companies began to improve.

The RTC was the major beneficiary of the 1876 agreement. Under this, the company gained control of the lucrative and rapidly expanding German market for pyrites, and within a matter of years it had become the dominant firm—with a 50% market share—in an oligopolistic world industry, with some degree of control over prices. At the same time, more of the product of the mines was treated locally to recover the copper contained therein. By the end of the 1880s, Rio Tinto was the leading producer of copper in the world. The company had smelters in Spain and a smelter and refinery in south Wales. In 1887, when the French entrepreneur Hyacinthe Secretan attempted to corner the world copper market to raise prices, RTC at first reaped the benefits of its participation in the scheme, whereby Secretan undertook to buy all its copper at fixed prices, and was not severely affected when Secretan’s scheme backfired in 1889, resulting in a spectacular collapse in the copper market. The strong market position of the company—by 1887 it was responsible for 8% of the total world copper supply—was reflected from the 1880s onwards in high profits. The larger part was returned to shareholders as dividends.

Hugh Matheson laid the foundations for the subsequent prosperity of the RTC, which rose to a high level under the leadership of Sir Charles Fielding. In his first ten years as chairman, 1898 to 1908, the company paid an average annual dividend of 41% on a share capital of £3.5 million. Fielding built solidly on the achievements of the Matheson era, assuming personal responsibility for the introduction of a range of new technologies such as pyritic smelting. He also streamlined management, accounting, and decision-making practices, and, at a time of strong market growth, these innovations helped elevate the company to a higher level of profitability. The Spanish government, under pressure from nationalists of all descriptions, tried to lay claim to a larger share of company revenues, but these efforts were generally thwarted; nor did the laborers of the mining district have much success in raising the level of wages paid by Rio Tinto. The company showed scant regard for the argument that it could afford to pay much more than it did, pointing out that it already paid more in cash and kind than most other large employers in Spain. The real wages per head of the 15,000 workers employed by the RTC in Spain in 1913 were actually less than those paid to 10,000 workers employed 20 years earlier. Low-cost housing; discretionary pensions; and company stores, schools, taverns, and other recreational facilities began to cause resentment—as substitutes for higher wages—among the workers and their families.

Strikes of varying length and bitterness became commonplace at Rio Tinto following the outbreak of World War I, exacerbated by ever-rising prices and declining real wages. A violent and acrimonious nine-month strike in 1920 ended with the unions exhausted and the company resented in many sections of Spanish society, across the political spectrum. From this time onward, the fate of the RTC in Spain was bound up with the turbulent course of national politics. There was a period of relative stability between 1923 and 1929 under the dictatorship of Miguel Primo de Rivera, and the company was fortunate to escape lightly when it was discovered to have been evading export taxes through under-recording of the copper content of minerals shipped from Huelva. After Primo de Rivera left office, however, there followed a long period of disruption and uncertainty that lasted until the mines were sold to Spanish interests in 1954. As left- and right-wing political factions vied for power between 1929 and 1936, the RTC came to be seen as an economic Rock of Gibraltar that must concede more in the interests of Spain. Damaging labor laws and taxation policies were introduced at the very time when the company was suffering from depressed trading conditions around the world, and when the copper content of the ores mined at Rio Tinto was plummeting. The decision was made by the third chairman of the company, Sir Auckland Geddes, who served from 1925 to 1947, to invest only as much money in Spain as was needed to sustain the operation

The 1936-1939 Spanish civil war brought further problems. From an early date, the Rio Tinto mines were occupied by the Insurgent forces led by General Francisco Franco. The mineral wealth of the district was seen by Franco as a means of procuring arms from the Axis powers, and within months the RTC found itself caught up in a complex web of diplomatic intrigue involving London, Berlin, Rome, and the Franco regime. Control over the company’s Spanish assets had been lost, and was never effectively regained. During World War II and the period of reconstruction which followed, the RTC had little control over production, prices, or the numbers of workers employed in Spain. The company was held in check by restrictive laws and regulations, causing the real value of its assets to fall with the passage of each frustrating year. It was with great relief that the RTC managed to sell its Spanish operations in 1954. After many years of negotiations, involving Franco himself, the business was sold to a newly formed Spanish company in exchange for a one-third interest in the enterprise plus £7.7 million in seven annual installments.

Auckland Geddes involved the company in ventures in other parts of the world and brought to the RTC a new style of business leadership. Unlike previous chairmen, he eschewed close involvement in day-to-day administrative matters in favor of major questions of policy and organization. He delegated responsibilities to full-time directors recruited from outside the business, and he initiated a search for major new investment opportunities in mining and related fields. Exploration subsidiaries were formed and research stations opened. A large minority shareholding in the Davison Chemical Corporation, a leading United States artificial-fertilizer manufacturer, was purchased. Together with Davison, the RTC set up a series of subsidiaries throughout Europe to manufacture and market the versatile chemical absorbent, silica gel. Substantial minority shareholdings were also acquired in several other companies devoted to exploration and the development of new products.

By far the most significant of the new departures inspired by Geddes was the involvement of the RTC in the development of the Northern Rhodesian (now Zambian) copperbelt. The opportunity to secure a stake in the field came early in 1929 when U.S. interests attempted to take over the promising N’Changa deposits. Along with Sir Ernest Oppenheimer and other members of the British-cum-South African business community, Geddes judged this move to be detrimental to British business interests, and led the resistance to it. By the time the struggle was over, the RTC had acquired sizable copperbelt holdings and valuable information which suggested that the deposits were amongst the richest and most extensive ever discovered. Further shares were purchased in major copperbelt development companies in the months following the N’Changa struggle, and by 1930 the RTC had become a major economic force in Northern Rhodesia. In that year Geddes and Sir Ernest Oppenheimer, whose Anglo American Corporation was the leading company in copperbelt finance, forced through the merger of three of the biggest development companies to form the Rhokana Corporation. Geddes was appointed chairman of the new company. Under his leadership Rhokana emerged during the next 17 years as one of the largest and lowest-cost copper companies in the world.

Not all of Geddes’s business initiatives were so successful. The RTC’s venture into chemicals proved in the end to be a financial disaster, and the firm’s exploration activities never yielded anything of worth. Failure in these fields was largely a consequence of the world economic Depression but in part such losses were due to ill-informed and hasty judgments on the part of the RTC board. The returns on the Northern Rho-desian investments, however, more than compensated for these setbacks, enabling the firm to survive the protracted decline of its Spanish business, and laying the foundations for its emergence as a modern multinational enterprise.

The regeneration of the RTC after World War II was, to a great extent, the work of two men, Mark Turner and Val Duncan, who formed one of the most creative business partnerships of modern times. Turner, the elder of the two and an investment banker by training, was appointed acting managing director of the company in 1948 on a part-time basis. He was charged with finding a full-time replacement, and for the position he groomed Duncan, a younger lawyer he had met during the war. Duncan was appointed managing director of the RTC in January 1951, allowing Turner, who remained a leading member of the RTC board and Duncan’s closest colleague, to devote more of his time to the banking business of Robert Benson, Lonsdale—later Kleinwort Benson. Together, Duncan and Turner persuaded their colleagues and leading shareholders that Rio Tinto should aim to become a growth-oriented, broadly based natural resource company with operations concentrated in politically stable parts of the world, especially the commonwealth countries. In the late 1940s and early 1950s, interests in a range of potential mines were secured, from tin and wolfram in Portugal to diamonds in South Africa and copper in Uganda. Between 1952 and 1954, a network of amply funded exploration subsidiaries was established to search for mineral deposits that might be exploited on a large scale in Canada, Africa, and Australia.

The sale of the Spanish mines in 1954 released further human and financial resources for the task of rebuilding and reorienting the RTC. An intense period of exploration followed, which sent Duncan and other executives to all parts of the world to supervise exploration agreements and consider the mine-development deals put to the company from time to time. The first tangible result of this activity came in 1955 with the purchase of a majority interest in the Algom group of uranium mines in the Elliot Lake district of Canada. The authorized capital of the RTC was raised from £8 million to £12 million to accommodate the purchase, and a loan of US$200 million was raised against various supply contracts to fund the development of seven major mines. The company’s position in the uranium industry was consolidated by the simultaneous acquisition of a controlling interest in the Mary Kathleen mine in Australia. By the end of the 1950s Rio Tinto was responsible for the production of 15% of the world’s uranium oxide, and along the way the company had gained control over two highly promising mineral prospects: the vast Hammersley iron ore deposits in Western Australia and the Palabora copper deposit in South Africa.

By the early 1960s Duncan was confident enough to take the decisive step toward realizing his vision of the RTC as a first-rank multinational enterprise. Merging was the obvious means of speeding the process of building up the organization, and he found an ideal prospective partner in the London-based Consolidated Zinc Corporation. This company had steadily expanded its activities since 1905 when it was launched to recover the large quantities of zinc remaining in the tailings dumps of the legendary silver-lead mines at Broken Hill in New South Wales, Australia. CZ’s operations were still concentrated in Australia, but had been progressively extended to include a wide range of mining and metallurgical activities. The compatibility of CZ and the RTC was both strategic and structural. Strategically, the leading directors of CZ wished to attain major-company status through geographic diversification and the development of important new prospects, particularly the vast Weipa bauxite deposits of northern Queensland. Structurally, the company was about the same size as the RTC with net profits running at a little over £1 million per annum, and its major interests were in complementary rather then competing areas. The merger would, at a stroke, produce a large and broadly-based organization with financial and technological resources to undertake a range of promising new ventures. In July 1962 the two companies came together to form RTZ. Duncan was appointed managing director of the new concern, and in 1963, on the retirement of A.M. Baer, he became chairman and chief executive of RTZ—positions which he retained until his death in December 1975.

Under Duncan’s leadership, RTZ rapidly rose to prominence in the natural resource industries of the world. In partnership with Kaiser Aluminum, the firm established an integrated aluminum business in Australasia, Comalco Limited. The Hammersley iron and Palabora copper projects were brought to fruition. Extensive exploration was continued, eventually yielding large-scale mines in Papua New Guinea (Bougainville Copper), Canada (Lornex Copper), and Namibia (Rössing Uranium). Meanwhile, the scale and the scope of the business was further expanded through the purchase of going concerns: Atlas Steels (high-grade specialty steels) in Canada, Borax Holdings (industrial raw materials) in the United States, and Capper Pass (tin refiners) and Pillar Holdings (aluminum fabricators) in the United Kingdom. By the early 1970s RTZ had achieved the geographically and geologically diverse pattern of operations long pursued by Val Duncan.

Duncan made an important contribution to advancing the fortunes of the enterprise. He was the principal architect of the strategy of promoting growth through involvement in a stream of large-scale, capital-intensive natural resource projects. Potential financial limits to growth were overcome through the funding of massive projects with a high ratio of loan capital to equity. Multi-million-dollar loans were raised by Duncan and his team throughout the world through the device of offering long-term supply contracts as collateral. Potential organizational and managerial limits to growth were overcome by the progressive devolution of responsibilities to a series of nationally based companies, each charged with the goal of involving RTZ in substantial new projects. By the early 1970s RTZ had emerged as a loosely knit family of companies with the activities of the parent concern limited to the provision of group services, the controlling of major strategic and financial decisions, and the appointment of top personnel.

The strategy, organization, and policies devised by Val Duncan remained in place in the 1990s. Duncan was succeeded as chief executive by Mark Turner. He continued in office until his death in December 1980. Turner saw no need to change course, nor did Anthony Tuke who replaced him, and nor has Alistair Frame or Derek Birkin, the latest in the long line of distinguished chairmen which began with Hugh Matheson. The essential integrity of RTZ has been maintained while growth has continued. New mines and smelters have been brought on stream, and new processing facilities have been developed. Some businesses have been bought; others have been sold. The biggest boost to the enterprise came in 1989 with the acquisition of BP Minerals for £2.6 billion. This deal brought to RTZ one of the greatest names in world mining, the Kennecott Corporation, and a portfolio of assets in 15 countries, including the world’s largest opencast copper mine and the world’s largest producer of titanium dioxide feedstock. RTZ immediately became one of the world’s largest producers of gold outside South Africa. The shares of world output accounted for by the much-enlarged company in 1989 were 55% of borates, 30% of titanium dioxide feedstock, 13% of zircon, 15% of industrial diamonds, 14% of vermiculite, 8% of talc, and 5% or more of uranium, copper, and molybdenum. RTZ also ranks amongst the world’s largest producers of tin, bauxite, silver, iron ore, gold, lead, and zinc.

The impressive performance of RTZ since 1962 may be attributed to many factors, not least the general buoyancy of the world economy. Yet success in an inherently problematic industry can never be guaranteed, and much credit must be given to the sure and consistent way in which the business has been administered. Credit must also be given to the flexibility displayed by RTZ executives when faced with sensitive and difficult issues, such as the legitimate concerns of environmentalists and economic nationalists. When it became clear, for instance, that Australians would not tolerate foreign majority ownership of large-scale natural resource companies, the reaction at RTZ was gradually to reduce its stake in CRA— now a multinational in its own right—to 49%. In this, and in many other ways, RTZ has taken a lead that others have followed. All the while, the management style has remained open and opposed to bureaucracy. Self-conscious avoidance of rigidity, more than anything else, has allowed RTZ to remain responsive to opportunity.

Principal Subsidiaries

Borax Consolidated Limited; Anglesey Aluminium Limited (51%); R.T.Z. Pillar Limited; Pillar Building Products Limited; Pillar Electrical PLC; Pillar Engineering Limited; Kennecott Corporation (U.S.A.); United States Borax Chemical Corporation; US Silica; Rio Algom Limited (Canada, 51.5%); Indal Limited (Canada); QIT-Fer er Titane Inc. (Canada); Palabora Mining Company Limited (South Africa, 39%); Rossing Uranium Limited (Namibia, 46.5%); Rio Tinto Zimbabwe Limited (58.4%); CRA Limited (Australia, 49%); Richards Bay Minerals (South Africa, 50%); Somincor (Portugal, 49%); Minera Escondida Limitada (Chile, 30%).