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Commodities

Australia miners fear further blast fallout after Rio CEO's exit

Resource companies expect more curbs after destruction of ancient Juukan cave

A protest in Perth following Rio Tinto's destruction of two ancient rock shelters. Shareholders also voiced concern over the mining giant's actions.   © EPA/Jiji

SYDNEY -- Rio Tinto's chief executive is stepping down amid an investor backlash after the mining giant blasted one of the world's oldest heritage sites three months ago -- but his exit is unlikely to contain the questions hanging over Australia's lucrative mining sector.

On Friday, Rio announced CEO Jean-Sebastien Jacques will leave the role by March 31. The move came just three weeks after an internal review by its board stopped short of assigning any individual accountability for the Juukan Gorge disaster, in which a 46,000-year-old cultural site in Western Australia was destroyed to expand mining operations.

Rio's iron ore boss, Chris Salisbury, and corporate relations head Simone Niven will also step down.

The group's handling of the controversy has heightened disquiet within the Australian mining industry ahead of an impending legislative overhaul as investors, media and lawmakers step up pressure on the company and the industry to change.

The result, according to several stakeholders, will be a tougher regulatory regime for Rio and its peers, which will cast doubt over economic valuations of key projects, making it harder to win approvals and leading to additional costs.

"There is a real likelihood that change that goes some way to remedying the power imbalance between traditional owners [of heritage sites] and multinational mining companies will come with some costs," said Brynn O'Brien, executive director at shareholder advocacy group the Australasian Centre for Corporate Responsibility.

The investor activism comes amid suspicions that state and federal governments would be loath to impose tough regulations on the mining industry, which accounts for roughly 15% of Australia's GDP. Rio, along with BHP and Fortescue Metals Group, are three of the four leading global exporters of iron ore, essential in making steel.

The country's top two exports -- iron ore and coal -- contributed 150 billion Australian dollars ($110 billion) in export revenue in 2018-19. State and federal governments earned AU$39.3 billion from the industry that year by way of company taxes and royalties. Mining is also a major employer.

The site at Juukan Gorge, where ancient rock shelters were damaged to expand Rio Tinto's iron ore mining.   © AFP/Jiji

The furor has already triggered a rare public inquiry into the mining's impact on cultural heritage. The inquiry is looking at ways to improve indigenous heritage protection under Australia's main environmental protection law, the Environment Protection and Biodiversity Conservation Act.

The inquiry's report, due by December, will complement an ongoing review of the act whose recommendations are due in October.

On Friday, the chairman of the inquiry, Warren Entsch, welcomed the decision. "The evidence received by the committee has made clear that the internal culture at Rio Tinto was a significant factor in the destruction of these sites," he said. "New leadership, new structures and new operating principles within the company are essential to preventing such catastrophes in the future."

The Western Australia state government has also accelerated a separate review of its nearly 50-year-old Aboriginal Heritage Act, with a bill promising a greater say to traditional owners on oversight of their heritage system, providing them with a right to appeal decisions and raising penalties for damaging heritage sites.

Miners are supportive of many of the state-level changes but oppose bringing existing private native title agreements -- which prevent traditional owners from publicly objecting to mining proposals -- under the new legislation.

They also have reservations over possible changes to federal environment protection laws.

"This risks duplicating or fragmenting regulatory processes, approvals and compliance requirements, which would increase the burden on both land users and traditional owners," BHP said in a submission to the inquiry.

That view is backed by rivals Fortescue, mining magnate Gina Rinehart's Roy Hill and energy giant Woodside Petroleum.

The Minerals Council of Australia, the industry's top lobby group, has long complained that overlapping state and federal laws delay projects and reduce global competitiveness. It blames bureaucratic delays for a rise in the assessment time for large, complex projects, raising costs.

In a separate submission to the federal government, the MCA said favorable policy reform would boost prospects for AU$50 billion of potential investment across 106 mining projects for which feasibility studies have been completed.

"Different triggers, timeframes, reviews, requests for further information and a lack of efficient inter-agency coordination create unnecessary complexity, costs and delays," the submission said.

Rio's troubles grew after its internal review was publicly labeled "inadequate" by behemoth pension fund Australian Super and the Australian Council of Superannuation Investors.

Angering investors, the miner initially blamed the May 24 Juukan Gorge incident in the Pilbara region on "systemic failures" instead of assigning accountability.

It offered to cut bonuses worth a total of AU$7.2 million for the top three executives involved. But that only prompted private demands from a number of institutional investors for greater accountability.

"We have listened to our stakeholders' concerns that a lack of individual accountability undermines the group's ability to rebuild that trust and to move forward to implement the changes identified in the board review," Rio Chairman Simon Thompson said on Friday after announcing his CEO's exit.

Jean-Sebastien Jacques will step down as Rio Tinto CEO after the controversy over the Juukan Gorge.   © Reuters

While investor criticism has focused on Rio, other mining companies are facing a barrage too.

In a strongly worded open letter, pension fund HESTA, which holds $52 billion in assets, warned that damaged relations with indigenous communities could push the cost burden on investors.

"What occurred with Rio is a wake-up call for all investors," CEO Debby Blakey said. "We will consider using our voting rights where we identify the need for improved practices and disclosure."

HESTA has written to 14 Australian mining and energy companies in which it holds stakes to communicate its expectations of how they should navigate similar risks.

Investors say if these issues are not tackled, the longer-term costs would take the form of delays in mining approvals, significant board and management time responding to problems, and a lack of trust from traditional owners leading to difficulties in making agreements.

Big miners are already seeing the near-term impact. Rio has halted work on its $1.2 billion Brockman 4 mine expansion, nullifying the reason for its decision to legally blow up the site at Juukan Gorge.

BHP has put on hold development at its $3.6 billion South Flank mine in Western Australia due to reservations by the indigenous Banjima people over heritage sites. Fortescue also paused an application for a $287 million expansion of its Solomon project to allow consultation over significant rock art and shelters.

The Australasian Centre for Corporate Responsibility has also introduced shareholder resolutions for BHP and Fortescue to halt work at all cultural heritage sites in Australia.

"You could end up actually not being able to move forward. You could end up with changes that may ... decrease the economic value to the company," said UBS mining analyst Glyn Lawcock.

"Anything that impacts the duration of negotiation, there's always an element of cost involved with time."

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