*

Stausholm led revival of Rio with expansions in iron ore,

copper

and lithium

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Stausholm's reluctance to prioritise cost cuts led to

departure

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Board concerns over rising costs amid declining revenue

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Potential successors include Trott, Baatar, Pecresse

By Clara Denina, Ernest Scheyder and Melanie Burton

May 28 (Reuters) - Rio Tinto's board and Jakob Stausholm

agreed to part ways last week amid mounting concerns the CEO was

reluctant to follow board priorities, including focusing on

costs, after years of expansions in lithium, copper and iron

ore, three sources said.

Rio , the world's second-largest listed

mining company, surprised investors last week by announcing

Stausholm would step down later this year when a successor is

appointed.

No reason for Stausholm's exit was given, and sources said

it was not tied to any scandal. The CEO had as recently as two

weeks ago given no indication of his departure at a major

industry conference in Spain, according to three sources who

attended.

Reuters spoke with six people who were familiar with board

considerations, or who had been briefed on them, or briefed by

management. They agreed to speak on condition of anonymity to

discuss sensitive internal matters or private conversations.

Rio Tinto declined to comment for this story, while

Stausholm did not respond to requests for comment.

Stausholm took the helm at Rio in 2021 at a low point in the

company's history after his predecessor was sacked. The Dane

started his tenure with a listening tour of the company's global

portfolio, which stretches across every continent but

Antarctica.

He led a turnaround in the miner's fortunes by resetting

relationships in Guinea and Mongolia to bring its next wave of

iron ore and copper projects online. Stausholm also inked three

major lithium deals in the past year.

As his successes mounted, one source said Stausholm became

more likely to push back on board suggestions and too quickly

dismissed opportunities the board felt could have been better

explored.

One of those opportunities included Stausholm's rejection of

an approach by Glencore ( GLCNF ) executives last year seeking a

potential merger, according to a person familiar with the

matter.

Another related to reviewing options around the stake of its

largest UK shareholder Chinalco, which came up with investor

pressure for the miner to review its dual Anglo-Australian share

market listing, said the first source.

While the board backed Stausholm's investments and strategic

decisions, it held concerns that rising costs had to be dealt

with now rather than in a few years' time, two of the sources

said.

Rio's average headcount has climbed by 22% to around 60,000

people since Stausholm's appointment in 2021, according to its

most recent annual report. Meanwhile, revenue has dropped more

than $10 billion over that time, with prices of its key profit

generator, iron ore, expected to fall further in coming years.

The board told Stausholm that he must put more focus on cost

cuts and operational excellence, but he was resistant and they

decided to part ways, three of the sources said.

"Nothing else changes. The board is happy with the growth

options, they are happy with lithium, the strategy is the same,"

one source said.

DOUBLING DOWN

Some investors criticised Rio for overspending on its $6.7

billion buy of lithium miner Arcadium after a plunge in prices

for the battery metal. That deal was followed by more than $1

billion more in spending on two projects in Chile earlier this

month.

With the lithium market in the doldrums, it will take years

to know whether Stausholm's bet will have paid off, although

demand projections for the metal are strong into the next

decade.

Rio's lithium joint venture with Codelco "aligned with its

growth and value creation strategy," Goldman Sachs ( GS ), which

has a "buy" recommendation on the stock, said last week.

Rio investor Pendal Group has raised concerns about

additional staffing costs at both Rio and larger rival BHP

, said Pendal investment analyst Jack Gabb. As recently

as February, Stausholm said that costs "hadn't been a focus,"

Gabb said.

Rio's ballooning costs had been flagged internally for some

time, including at a recent executive retreat in Australia by

CFO Peter Cunningham, a source with direct knowledge said.

Despite those warnings, Stausholm saw himself as a strategic

leader rather than a cost-cutter, with the board increasingly

preferring the latter, the person added.

"Rio's got amazing assets, but a bloated bureaucracy, full

of people looking for work to do. That's just not sustainable,"

the person said.

Of Rio's internal bench of potential successors, iron ore

head Simon Trott, Chief Commercial Officer Bold Baatar, and

aluminum division boss Jerome Pecresse are seen as potential

replacements, all of the sources said.

Pecresse may have an advantage given his management style

focused on cost-cutting, one of the sources said.

"Rio doesn't need another visionary right now," the source

added.

(Reporting by Clara Denina, Ernest Scheyder and Melanie Burton.

Editing by Veronica Brown and Lincoln Feast.)