Rio Tinto drops iron ore chief as incoming CEO makes his mark

* New CEO revamps copper division to add diamonds

* Share (LSE: SHRE.L - news) price edges lower, in line with wider sector

* Analysts say reshuffle was expected (Updates throughout with comment, context)

By James Regan and Barbara Lewis

SYDNEY/LONDON, June 21 (Reuters) - Rio Tinto (LSE: RIO.L - news) replaced the head of its main profit-making iron ore division in a reshuffle by new Chief Executive Jean-Sebastien Jacques, who will run the mining giant from the start of July with a focus on the lowest costs in the business.

In common with its peers, Rio Tinto is striving to cut debt and sell some assets following a collapse in the value of commodities triggered by weaker than expected Chinese growth.

Analysts said the shake-up was part of an ongoing slimming down of mining organisational structures and had been expected as the incoming boss to replace Sam Walsh makes his mark.

Iron ore accounts for almost 90 percent of Rio's earnings, but that market is expected to remain oversupplied, while analysts see better growth potential in copper.

Iron ore division head Andrew Harding - once tipped as a contender to lead the global mining house - will leave on July 1, the company said in a statement, and Jacques, previously copper and coal division head, takes over the following day.

"A big departure, but not a great surprise given that Andrew must have been vying for Sam Walsh's role," Hunter Hillcoat, analyst at Investec (LSE: INVP.L - news) , said. "This possibly made it untenable that he remain."

Harding will be replaced by Chris Salisbury, currently acting copper and coal chief executive. He previously headed the coal division in Australia, where the company says he reaped more than $1 billion in cost savings.

Iron ore will remain dominant, but Rio has said it will no longer fund major expansions as that market reaches saturation.

Jacques earned praise from analysts for tough assignments such as Rio's Oyu Tolgoi project in Mongolia, which when completed will be the world's third-biggest copper mine.

Rio's share price was 0.9 percent lower by 1340 GMT, in line with the wider sector.

CHALLENGES AHEAD

Rio Tinto is widely seen as the best placed among the world's top five miners to weather a prolonged commodities slump as it has cut debt faster than its rivals.

Its low production costs are testimony to Harding's skill, analysts said, adding Jacques would face a challenge to find further scope for savings.

"It (Rio) has been well placed. It (Other OTC: ITGL - news) has good assets, but the next level of cost savings, that's going to be painful," Ivestec's Hillcoat said.

Investors were relieved another possible contender for the top job, Chief Financial Officer Chris Lynch, would keep his role under the new head.

"It's good to see that he's sticking around. That's quite an important part of the team from a continuity perspective," Brenton Saunders, a portfolio manager at BT Investment Management in Sydney, said.

Among the changes announced on Tuesday, Rio said its copper and diamonds divisions will become one group, while a basket of coal, uranium salt, borates and other businesses will be combined under a banner of energy and minerals.

Copper and diamonds will be headed by Arnaud Soirat, who comes from the aluminium division and a long career in the aluminium industry.

Alan Davies stays on as head of the reshaped energy and minerals division, losing his diamonds brief, but inheriting energy coal and the Iron Ore Company of Canada, and keeping uranium.

In a note, Bernstein said all unwanted assets had been gathered into one unit, energy and minerals. "To us, this seems like a portfolio of unwanted assets that could be ready for a spin-off," it said.

Alfredo Barrios stays as head of the aluminium division, based in Montreal. (Additional reporting by Sonali Paul in Sydney, Mamidipudi Soumithri in Bengaluru and Pratima Desai in London; Editing by Richard Pullin and Susan Thomas)