Report on the Rio Tinto plc AGM, London, 11 April 2018
By Richard Solly, Co-ordinator, London Mining Network
A recording of the whole AGM is available at https://edge.media-server.com/m6/p/q6qsz3ho (registration is necessary). An analysis of the company’s responses is on the Mines and Communities website.
1. As the Rio Tinto board entered the Queen Elizabeth II Conference Centre auditorium in Westminster just before 11am on 11 April, I noticed how very white and very male that board still is. The entire board is white, and only two of them are women, and one of those sat mute and far away in Australia, looking somewhat bored and embarrassed on a video link-up.
2. But it wasn’t only her who looked embarrassed. New company Chairman Simon Thompson appeared embarrassed too, at times, when questioned about murders, human rights abuses, ecological catastrophe and corruption which, questioners asserted, were associated with the company’s operations in various corners of the globe. He denied responsibility. It wasn’t Rio Tinto’s fault. It was the weather, or the landscape, or the earthquakes, or the army, or the locals. Rio Tinto was doing its best. It was an innocent victim of circumstances beyond its control.
3. It put me in mind of the boy who tells his teacher that the reason he hasn’t brought his homework in to school is that the dog had eaten it.
4. We at London Mining Network were hosting Indonesian environmental activist Pius Ginting, who tackled the Rio Tinto board over the continuing violence and environmental degradation around the Grasberg copper-gold mine in West Papua. But much was also said in the AGM about the company’s operations at the Oyu Tolgoi copper-gold mine in Mongolia, its plans to mine lithium in Serbia, its legacy at the Panguna mine in Bougainville and the Ranger uranium mine in Australia, and its impacts on the climate.
The Chairman’s speech
5. Simon Thompson’s full address is on the Rio Tinto website. He was keen to stress how much money the company has invested in Mongolia – doubtless because of the recent controversy over its tax arrangements there. He also talked about the creation of jobs for Indigenous people in Australia by expansion at Weipa, attempting to put a positive spin on a project that has caused enormous controversy over the years because of its impact on Indigenous rights.
6. Then he said something quite intriguing in the light of his comments later on about Rio Tinto’s legacy in Bougainville and West Papua:
7. “You have probably never heard of the Holden Mine in the remote Cascade Mountains in the north west of the United States. Discovered by prospector James Henry Holden in 1896, it was once one of the largest copper mines in America, but shipped its last ore in 1957. Although Rio Tinto never operated Holden, we became responsible for it as part of the acquisition of Alcan in 2007. Last year we completed the rehabilitation of the site at a cost of US$500 million. But the resources and technical expertise that Rio Tinto marshalled are only part of the story about the successful final closure and remediation of the Holden mine. Partnerships with a diverse set of stakeholders, including the US Forest Service and the Lutheran Bible Institute, which uses the old mine camp as a retreat, were vital to the successful outcome. At Holden, as at every other Rio Tinto operation worldwide, we take our environmental responsibilities very seriously. From discovery to closure.”
8. Later in the meeting, as you’ll see below, when he was asked very specifically about taking environmental responsibilities seriously at the Panguna and Grasberg mines, he dodged the issue.
9. Then he tackled two of the other individual elephants among the vast herd in the room. (Apologies for mixing elephants with dogs here. It should be okay as long as the elephants are careful where they tread.)
10. “Over the past two years,” he said, “our reputation has been called into question, by allegations of accounting fraud in relation to former assets in Mozambique and of bribery in Guinea, so it is important that I address these issues.
11. “In 2017, the Financial Conduct Authority determined that we should have impaired an investment in a coal project in Mozambique six months earlier than we did, in 2012. These are highly complex, technical accounting judgements, and the FCA, of course, had the benefit of hindsight. Nevertheless, we have settled this matter with the FCA and paid a financial penalty of £27 million pounds.
12. “Importantly, the FCA found no evidence of widespread or systemic failure or of fraud. They simply believed that Rio Tinto should have impaired the asset six months earlier than it did.
13. “Based upon exactly the same facts, the United States Securities and Exchange Commission, alleges that a former CEO and CFO of Rio Tinto deliberately and fraudulently withheld information regarding the Mozambique coal project, both from the board and from our external auditors.
14. “We strenuously deny these allegations and we will vigorously defend ourselves in court. In relation to Guinea, the board became aware in 2016 that a payment of US$10.5 million had been made in 2011 to a consultant providing advisory services in relation to the Simandou project. After an independent investigation, the board concluded that the proper internal procedures had not been followed in relation to this payment.
15. “We therefore did two things: Firstly, we self-reported to the relevant authorities in the UK, the US and Australia; and secondly we dismissed two senior executives, for failing to uphold the standards expected of them under our global code of conduct, The way we work.
16. “While this was clearly a very tough decision, the board believed that it was essential to convey the clear message, both internally and externally, that no matter how senior you are in Rio Tinto, you must abide by the rules set out in our code of business conduct.”
The CEO’s speech
17. Chief Executive Officer (CEO) Jean Sebastien (“J-S”) Jacques then spoke. His speech is also on the Rio Tinto website. He began with a paean to money, and the large amounts of it that Rio Tinto has apparently created, generated, dug up, found, kept, given away and thrown around the place. Money talk always bores me rigid.
18. Then he talked about more important matters: human lives (one life, anybody’s life, being more valuable than all the money in all the world).
19. “Safety is one of our core values,” he said. “And this is why everyone in Rio Tinto, deeply felt the loss of two of our colleagues in 2017. Albert Lozano died at our Kennecott operation in the US, following injuries he suffered after SO2 exposure. I was on site just after the event and witnessed first-hand how Alberto’s death was an awful tragedy for his family, friends and colleagues. Sadly, another of our colleagues, an exploration team member, Paul Fogarty, passed away due to health issues while working in Western Australia. Again, an absolute tragedy. We are doing all we can to learn from these incidents and build on the positive safety efforts of all of our colleagues around the world.”
20. I don’t doubt the sincerity of the company’s dedication to safety at work. I just wish the board’s concern would spread further beyond their own workers and take fuller account of those who suffer and die as a result of ecological destruction and social conflicts caused directly by the presence of mining projects in which they are involved.
21. Like Simon Thompson, J-S Jacques also spoke a lot about the supposed benefits of Rio Tinto’s involvement in Mongolia. They must be feeling particularly vulnerable on this matter at the moment.
22. He also said the company is actively exploring in fifteen countries and is particularly interested in copper, and in working with other parties to get hold of it.
Remuneration policy and political donations
23. Simon Thompson returned to talk about the company’s remuneration policy, as he has been Chair of the Remuneration Committee during 2017. I found it hard to concentrate on this, but as far as I can see, the policy is to pay people at the top of the company obscene amounts of money because if that doesn’t happen they might take their business elsewhere. I don’t remember them speaking about how many times more the CEO gets than the lowest paid worker in the company. Pay differentials are sometimes defended on the grounds that the better paid work is more important than the lower paid. I suggest a practical project to test this hypothesis. First, ban anybody anywhere in the company from cleaning floors and offices, cooking or serving food, or nursing anybody back to health when they’re ill. Once it becomes clear how crucially necessary these tasks are (probably within a few hours), make sure they all get paid the same hourly rate as the CEO. That would be my remuneration policy. But they haven’t asked me to join their Remuneration Committee yet.
24. He also mentioned political donations. He said that Rio Tinto has no intention to donate to political parties but was asking shareholders for permission to make political donations because the UK legal definition of a political organisation is very broad.
25. The he opened the meeting to questions.
Oyu Tolgoi – is it wise?
26. One shareholder asked about the Oyu Tolgoi copper and gold mine in Mongolia. He said that the company had spent $7.5 billion dollars and intended to spend a few billion more. The project seemed to have become a big political football in Mongolia especially since the leak of the Panama papers showing the enrichment of political leaders’ Swiss bank accounts. There was bad press continuously in Mongolia. People were saying that Rio Tinto was stripping the country. The Mongolian Government was continuously putting more hurdles in Rio Tinto’s path: it could not use cheap Chinese power and would have to buy more expensive Mongolian power. What protection does Rio Tinto have against the increasingly capricious actions of the Mongolian Government? The mine is in the middle of the Gobi Desert and needs a billion gallons of water a month to run its operations. From where will the company get all that water? In any case, the mine is thousands of miles from any port and completely dependent on China to sell its output. At the moment, China will say all sorts of sweet things to encourage investment but when the company is totally dependent on them what will happen? Rio Tinto already had employees rotting in jail on trumped-up charges.
27. Simon Thompson replied that Mongolia is a “young and boisterous democracy” which changes government at every opportunity. Oyu Tolgoi is a hugely important part of the economy and Rio Tinto is the largest private sector investor in the Mongolian economy. It had invested $7.2 billion dollars. It is inevitable that Oyu Tolgoi will always be in the news in Mongolia and be a political football. It is important to maintain good relations with the government and ensure that the greatest possible number of people share in the company’s success there. 80% of spending on the mine’s supply chain is in Mongolia, so a lot of people have a stake in Rio Tinto’s success, and the company wants to embed itself as part of Mongolian society. The Swiss authorities had said that Rio Tinto is not the target of the current investigation. The power plant was part of the original investment agreement. Oyu Tolgoi had an obligation to construct a power plant for the project. The government extended the period during which Oyu Tolgoi could buy power from China, but the government is now asking that the company construct the power plant.
28. J-S Jacques said that the company has its own source of water a few hundred kilometres from the mine. The mine was already up and running and the concentrator was up and running and there was sufficient water. This water could not be used for human consumption. The company had deployed the best available technology for recycling water and more than 80% of the water used was recycled.
29. J-S Jacques then spoke about China. He said that China is the largest customer for all key mining commodities except diamonds. Its share of these commodities is between 50% and 75%. Rio Tinto is looking for new customers, mainly Japan and South Korea, and has done trial shipments through China and Russia. This is working. The underground mine at Oyu Tolgoi is not yet running – it is two years into a five year construction programme at present. When the underground mine is up and running, with the full support of the Mongolian Government the company will ship a greater volume to Japan and South Korea via Russia or China. Project finance of $4.4 billion from public and commercial banks provides some protection against sovereign risk.
30. I felt sure that the questioner would be greatly comforted that exports from Oyu Tolgoi would not rely solely on the good will of the Chinese Government, but on the Russian Government as well. Particularly just now.
Why sell profitable coal assets? And what about court cases?
31. Shareholder Robert Muriel asked why the company had sold profitable coal assets. He also noted that former CEO Tom Albanese and others had left because of court cases pending against them. Why was it any concern of the US what had happened in Mozambique?
32. Simon Thompson replied that Rio Tinto’s strategy is to own tier one assets, or assets which could become tier one (large-scale, low-cost and expandable). The individual assets that the company exited did not measure up. Guy Elliott and Tom Albanese had retired from the board long before the problems over the Mozambique transaction arose and the investigation by the US SEC (Securities and Exchange Commission). John Varley did resign as a response to an investigation into a totally unrelated matter.
Public perceptions of Rio Tinto
33. Mark Bentley, representing British and German shareholders’ organisations, was concerned about long-term sustainability. Public perceptions of the company are important. Did Rio Tinto conduct surveys of public perceptions of the company, and should improving public perceptions be a KPI (Key Performance Indicator) for executive officers?
34. Simon Thompson replied that Rio Tinto does indeed conduct such surveys. It is taking steps especially in Western Australia to improve public perceptions. Survey organisation SARO is conducting an independent review of communities’ attitudes to Rio Tinto. This would give the company interesting data.
35. J-S Jacques said that “partnership questions are make or break for all of us”. Rio Tinto is a founding partner of ICMM (the International Council on Mining and Metals). All those involved face the same issues and need to “tell a better story about how we contribute to society”. He said that the company needs to help young people understand how their smart phones are reliant on the company’s work. [London Mining Network hopes that young people will use our educational game to learn about the damage done by mining the minerals used in their smart phones – but I didn’t say that the AGM.] J-S said that KPI measures are shared with the board on a regular basis. The latest set of results showed that Rio Tinto was doing well in the mining league table. In WA (Western Australia) the company had stepped up local procurement to make sure local communities benefit. It has relaunched its graduate programme. It had increased the number of internships. The company acknowledges that technology will change the jobs of everyone and that we all need to be prepared for the jobs of the future. Rio Tinto has a programme with the government to make sure that it has access to the right skill-set for the industry. “We have relaunched our brand in WA in an unconventional way via social media,” he said. “We have touched more than 30% of all the people in WA through social media. We need to do much more work to tell our narrative about what we are doing. We are not perfect but are working on it.”
36. Mark Bentley said that another key risk noted in the company’s annual report was commodity price risk. 75% of revenues and cash flow are concentrated in iron ore and aluminium. He thought this rather risky. Was the board considering diversifying risk by increasing investment in other commodities? There were fantastic returns on these two commodities so there may be a need to sacrifice some short-term income to longer term safety. What would the impact on copper revenues be when Oyu Tolgoi comes on stream?
37. Simon Thompson said that the company concentrated on those two assets as it had such good assets in those commodities. It would not diversify just for the sake of diversification, though shareholders could diversify their own portfolios if they wished. If Rio Tinto were to see opportunities for value creation through diversification then it would diversify to include the most attractive commodities. 70% of its exploration budget is in copper at present. Oyu Tolgoi would come on stream in 2021 and ramp up quickly after that.
Chairing multiple companies at the same time
38. Mark Bentley asked Simon Thompson how he could perform a task as onerous as chairing Rio Tinto while chairing two other corporations at the same time.
39. Simon Thompson replied that he could not do so, which is why he had given up one other chairmanship, retaining only that of 3 I.
Climate change and emissions targets
40. Helen Wildsmith the Climate Change Officer from CCLA insurers said that CCLA had led the Aiming for A initiative on climate change, which had now become Climate Action 100 Plus. This was designed to span multiple years and to be supportive of company boards and management as they managed the low carbon transition on behalf of institutional investors. They welcomed various by the company, including exiting coal, but were concerned that target setting should be more ambitious.
41. Simon Thompson said that the process of engagement on this matter with Climate Action 100 Plus and its predecessors had been positive. Rio Tinto was no longer involved in fossil fuels. The commodities in which it is involved will have a critical role in the transition to a low carbon economy. The company has a good portfolio and a huge competitive advantage. 69% of its power comes from renewable sources. It faces a massive challenge in decarbonising its business by 2050. The board looks forward to working closely with Climate Action 100 Plus.
42. Rodney Barton, an executive member of LAPFF (the Local Authority Pension Fund Forum), said that LAPFF looks forward to productive engagement with the company. It welcomes the aim of substantial decarbonisation, renewable energy use, the use of a carbon price, and setting emission reduction targets. Would the company be willing to set new targets by mid-September 2018, when a global climate summit is to be held in California?
43. Simon Thompson said that Rio Tinto tends to be cautious in setting targets. The company only feels comfortable doing so when management can see a clear pathway towards achievement of the targets. The existing targets on greenhouse gas intensity reduction run till 2020 and work is being done on setting targets for 2030, but more work is needed first. The company could not commit to finishing this by September this year but it would engage with LAPFF as it did so.
Sanctions, share buybacks and directors buying shares
44. There was a question on share buybacks. Simon Thompson replied that some shareholders prefer dividends and others prefer buybacks.
45. Another shareholder asked whether it was true that Rio Tinto would be one of the biggest winners from sanctions imposed by the US Government on Russian aluminium company Rusal, which earns 20% of Rio Tinto’s project in Australia. Would this alter any of Rio Tinto’s plans? Does Rio Tinto hope to benefit generally from these sanctions? The shareholder then addressed new director Simon Henry, saying that he was the only board member who does not own any shares, and recommending that he buy some.
46. Simon Thompson replied that Mr Henry had now bought some shares. On the issue of sanctions, Rio Tinto is committed to free trade. The company relies very much on international trade and history shows that free trade is a key driver of prosperity. The company therefore does not celebrate sanctions of any sort. [an interesting remark, I thought, given the company’s history of flagrantly ignoring sanctions imposed on apartheid South Africa]. Rio Tinto exports a lot of aluminium from Canada to the USA and it was important for the company that an exception was made for Canada regarding aluminium. Regarding Rusal, the latest round of sanctions was new news and the company was still looking at all the relations it has with Rusal including the QAL asset in Australia. It was too early to see what the impact would be, but the company would comply with all appropriate regulations.
Environmental destruction, violence and human rights abuses around the Grasberg mine in West Papua
47. Our friend Pius Ginting, an environmental activist from Indonesia, said that he had visited areas impacted by the Grasberg mine’s tailings disposal in the Mimika coastal area of Papua. Residents of Karaka island have been very badly affected, and residents of the community of Pasir Hitam had had to abandon their village as it was now surrounded by mining waste. There had been 100 people living there in the 1970s and now there were only ten, because the area was surrounded by tailings. The community is seeking remedy and rehabilitation but until now nothing adequate had been provided for the community, not even water. Would the company ensure that tailings from Grasberg would no longer flow to the coastal area, so the community could have a good fishing area?
48. Simon Thompson said that he would be the first to acknowledge that riverine tailings disposal is very far from best practice, and Rio Tinto had said publicly that it would not support it or seabed disposal in new projects. At Grasberg work had been done to identify an alternative, but the rugged terrain, heavy rainfall and seismicity had meant that no alternative had been identified. Rio Tinto was not a shareholder in Grasberg but had a metal strip arrangement with Freeport till 2021. He said that Rio Tinto had influence and that it used it to improve operations including in tailings deposition in lowlands, especially through the construction of levees and faster rehabilitation of tailings once they had settled. He said he would try to find out more as he could not answer Pius’s point in detail.
49. Pius said that it was good that Rio Tinto does not support riverine tailings disposal, but tailings continue to persist, as 80% of tailings remain in the river and 20% contaminate the coastal area, affecting livelihoods. In February last year, one of the community of Karaka island, which is impacted by tailings streaming into the sea, was shot dead by security personnel there, and her family is still seeking justice. Would Rio Tinto use its influence so that the family can feel that it will get justice?
50. Simon Thompson said that, again, he was not familiar with the details of this case. He said that both Freeport and Rio Tinto are signatories to the Voluntary Principles on Security and Human Rights. Security staff at Grasberg are unarmed.
51. J-S Jacques thanked Pius for his question. He said that there had been claims of human rights violations in the past and that on each occasion the company had asked for them to be investigated by third parties, who had found no violations. If Pius believed there had been a violation, Rio Tinto would demand an investigation. He said that the board did not have all the details but that he wanted to be very clear that there is a complicated situation in Papua and that the 700 guards used by Freeport are not armed. But the government had declared Papua a security area, and there are armed police and army personnel there. He said that there was not a clear link between what happened in the village and Freeport but that he would ask Rio Tinto’s Head of Copper to ask Freeport for details and would demand an investigation if there were any hint of human rights abuse by the company. Freeport and Rio Tinto implement the Voluntary Principles on Human Rights and are very clear on this, he said.
52. Andrew Hickman, of London Mining Network, said that there had been a lot of discussion about Rio Tinto divesting from the Grasberg mine. “If and when you do pull out of Papua, what happens about accountability?” he asked. Severe fighting had broken out in the area around the mine, including the only road leading between the main provincial town and the mine, so there was a direct link between the fighting and the mine. “Both the Indonesian army and the Papuan guerrillas are saying that one person has been killed and three injured,” he said. “Local people say that six have been killed and our information is that over a thousand are refugees and have fled into the forests and are being held hostage by the situation. In the context of negotiations between Rio Tinto, Freeport and the Indonesian Government about divestment, what happens when you go? What responsibility will you have toward those communities that are dying and will continue to die? There have been killings for decades. What commitment will you give us now that you will not just walk away but accept responsibility into the future for the people and the situation there? People are dying right now. I hope you can give us a commitment that you will take very seriously the impact of that mine and that when you leave you will still accept responsibility and give restitution to lands and communities.”
53. Simon Thompson said that no decision had yet been taken that Rio Tinto would be exiting Grasberg. Very detailed negotiations were taking place between Freeport and the Government of Indonesia over the extension of the Contract of Work, which expires in 2021. Because Rio Tinto is not an equity investor, it is not part of the negotiations, though it is monitoring them very closely. “At this stage,” he said, “we are agnostic about whether there is a contractual arrangement to enable us to continue investing in the mine or a reason to pull out to maintain value.” He said that Rio Tinto has some influence over the mine’s security guards because of its relations with Freeport and its commitment to the Voluntary Principles on Security and Human Rights, but the Government of Indonesia has declared Grasberg a ‘critical national asset’ and there is therefore a presence of police and military, and the mine has no control over this, so “I am unable to give the commitment that you asked me to give.”
54. Andrew asked, “What remedy do people have, then, if you will not give that commitment?”
55. Simon Thompson replied, “I am not sure I can answer that question.”
56. I was reminded of Pontius Pilate and the washing of hands.
Membership of trade associations
57. Adam Matthews, from the Church of England Pensions Board, said that his organisation had co-filed a resolution for the Rio Tinto Limited AGM in Australia in May, addressing membership of trade associations adopting lobbying positions at variance with Rio Tinto’s own announced positions on climate change. He was disappointed that the board did not support the resolution and had not allowed a vote on it at the Rio Tinto plc AGM in London. Rio Tinto has a unified board and operates with a common approach to governance. As a result of the decision not to allow equality between shareholders in Rio Tinto plc and Rio Tinto Limited, the Church of England Pensions Board had voted against the annual report and accounts. Would the company treat shareholders equally? What assessment had the board made of the implications for Rio Tinto plc were the resolution in Australia to be passed? Why do the Principles for Participation in Industry Associations, published last week, not mention climate change?
58. Simon Thompson said that there had been much discussion with Adam and others about this recently. It was very clear that Rio Tinto takes climate change very seriously. It had been using carbon pricing in its capital allocation decisions for nearly a decade and was making progress on setting and keeping targets. He recognised, he said, that there is more that the company needs to do. It has maintained active engagement with Aiming for A and the IIIGC. “There is much common ground between us,” he said. “The main point of principle that separates us is that we believe the only way we are going to solve the complex problem of climate change is by engagement, and that means with government, consumers, investors, but also with industry, and with the mining industry in particular, and that means we will engage from time to time with organisations with which we disagree. Unless we hold that engagement and find areas of compromise to progress the debate we will not solve the problem of climate change.” He said that Rio Tinto’s engagement with the Minerals Council of Australia covers a wide range of different issues apart from climate change, but that, even with climate change, the company thinks that engaging with the industry as a whole and moving it on is the best way forward. The Minerals Council of Australia had altered some of its positions as result of Rio Tinto’s involvement. Regarding filing the resolution, the company had spoken to Adam about how to do so, and reminded him when the deadline was approaching. There are resolutions to be voted on in London which will not be voted on in Australia. But UK shareholders cannot vote on the Australian resolution as worded. There was a lot of common ground but the specific demands in Resolution 20 going to the Australian AGM were not appropriate. The resolution demands that the company report on every payment it makes to industry associations, but Rio Tinto has membership of multiple industry associations in all 35 countries where it operates. Within the Minerals Council of Australia, companies share best practice on health, safety, environment, indigenous landholders, tailings management, market access and professional development. Climate change is a very significant part of MCA’s activity but not the only part.
59. Adam Matthews said that he acknowledged that Rio Tinto had played a positive role in support for the Paris agreement, but it was using shareholder funds to support industry associations which were acting against shareholders’ long-term interests, and there is a lack of clarity. The resolution does not mandate that Rio Tinto leave any particular trade association but mandates a transparent process at board level. The concern is broader than the Minerals Council of Australia and the resolution does not just speak to the MCA, although the MCA has disproportionate influence on policy in Australia, on coal. “What the resolution asks for is reasonable and we ask that you continue looking at how to go beyond the principles announced last Friday.”
60. Simon Thompson replied that the fact that the resolution had not been accepted had not prevented the issues being aired.
Ranger uranium mine
61. Andy Whitmore said that he was pleased to hear of the rehabilitation at the Holden mine in the USA. His question concerned Rio Tinto subsidiary ERA’s Ranger uranium operation in Australia’s Kakadu region. “Mining has ceased and mineral processing is mandated to end soon,” he said. “Previously, Rio Tinto has made commitments on its responsibility toward the necessary rehabilitation, and page 32 of the annual report refers to the company working with the local community on said rehabilitation. The rehabilitated mine area is to be returned to Australia’s largest National Park, which is a dual World Heritage listed site. Therefore the challenges of rehabilitation and closure are complex and will be a test of this company’s corporate credibility. The main planning on how rehabilitation will take place is contained in ERA’s Mine Closure Plan. ERA have undertaken to make this crucial document publicly available, but to date have not done so or committed to a definite release date. Therefore, as part of a commitment to the comprehensive rehabilitation of the Ranger mine site, will Rio Tinto ensure the timely release of the Mine Closure Plan?”
62. Simon Thompson said that yes, the company would do so. A board visit to ERA was being arranged for the end of 2018 so that board members could understand the closure plan, as it is a complex project. Mine closure will cost around $500 million and Rio Tinto has committed to support ERA in this. ERA has $468 million dollars but Rio Tinto has issued a $100 million letter of credit. The feasibility study is nearing completion and will then be consulted on with local stakeholders and the closure plan is to be made public towards the end of this year.
Women in senior management
63. Phil Clarke, describing himself as a ‘happy shareholder’ (despite hearing testimony about the killings, human rights abuses and environmental devastation associated with the company’s activities – but different things make people happy, I suppose) thanked the board for the ‘fabulous results’. He said he was pleased at the focus on safety. He called for more information about metal prices in the annual report. He finished, “You say you intend to increase representation of women in senior management roles 2% year on year. Can you assure us you’ll always appoint the right people for the job irrespective of race and whether they have got a penis?”
64. Simon Thompson said that he could. “We are trying to increase the number of women in senior management from a very low base. Women represent 18% of the total workforce and 22% of senior management. We exceeded the 2% target in the last year, purely on merit.”
Brexit and the diamond market
65. Another shareholder asked about the impact of Brexit on the Diamond Group. Simon Thompson replied that there would be a very limited impact. Rio Tinto produces diamonds in Australia and Canada and the biggest market is the USA, though the market is growing in China and India. so Brexit would have no impact.
Corporate climate lobbying
66. Sophie Marjanac, a lawyer at ClientEarth, London, said that she was attending the AGM as a representative of ClientEarth, ShareAction and InfluenceMap. She said:
67. “Our three questions relate to the issue of corporate climate lobbying and the resolutions proposed by a group of shareholders in the Limited entity, just spoken on by Adam Matthews of the Church of England.
68. “We note Rio Tinto’s publication of a document entitled ‘Participation in industry associations’. In the context of that document, we ask: Does the Chair consider it appropriate that the Minerals Council of Australia continues to advocate for government subsidies for new coal-fired power stations in Australia contrary to the company’s own pledged support for the Paris Agreement?”
69. Simon Thompson replied that Rio Tinto favours a technology-neutral approach, and prefers market-based instruments. But other members of the MCA have an interest in fossil fuels. Rio Tinto cannot impose its views on them and Simon Thompson did not think that putting an ultimatum was the best way to move forward. He agreed that there was a divergence in opinions between Rio Tinto and the MCA. But the best way is to engage with them.
70. Sophie asked, “Are you willing to go public with these divergence in opinions?”
71. Simon Thompson replied, “We have been saying it publicly for many years, we favour a technology-neutral approach and prefer market-based instruments.”
72. Sophie asked, “Has Rio Tinto analyzed the legal and reputational risks associated with continued memberships of 22 separate industry associations that may take contrary positions on climate and energy and other policies?”
73. Simon Thompson replied that the document published the previous Friday made it clear that the company has a process and there are instances where it has left trade associations for financial reasons or because of disagreements.
74. Sophie continued, “Our three organizations issued a report last week that concluded that Rio Tinto has fallen short of fully complying with the requirements of the Aiming for A resolution, passed in 2016. Our third question is: When does Rio Tinto plan to release an updated climate change report that is fully compliant with the Aiming for A resolution, as it is legally obliged to do in accordance with its governing documentation?”
75. Simon Thompson replied that the company was engaging with the Climate Alliance 100 Plus to see when to publish it and what information it should contain. It was a slow process, as it was a complex and multi-faceted issue.
Human rights abuse at Grasberg – a dereliction of duty
76. Mining researcher Roger Moody said that the Chairman’s lack of response to the crucial human rights and environmental issues raised by Pius Ginting and Andrew Hickman was a dereliction of the duties that the company ascribed to itself in its own policies. Human rights abuses had undoubtedly occurred over the past two decades and more, and Rio Tinto had failed to get Freeport to address the problems of tailings disposal. Rio Tinto could not hide behind an agreement with Freeport. It had made a major investment in 1996 which was a lifesaving investment for Freeport at a time when numerous abuses were continuing and were linked with the use of Freeports’s facilities. The Norwegian sovereign pension fund had disinvested from Rio Tinto on the grounds of unacceptable support being given to Freeport, and it had not changed its view.
77. Simon Thompson said that the company was absolutely committed to the Voluntary Principles on Security and Human Rights, and the security force operated by Freeport in Indonesia is unarmed. The Indonesian Government have police and defence force personnel in the area but they are not under the control of the mine.
78. Roger Moody said that Rio Tinto was not accused of benefiting directly from the armed forces, but the mine is a major factor in generating opposition by local people, including the demand for the revision of the so-called Act of Free Choice under which Papua had been ceded to Indonesia. “You can’t shirk responsibility by hiding behind VOLUNTARY principles,” he said. “Why can’t Rio Tinto apply its own compulsory code on human rights?
79. Simon Thompson said that he had already answered this. [Inasmuch as he had publicly washed his hands of the matter, this was undoubtedly true.]
Bribery and corruption, and human rights abuses in Myanmar
80. Roger then raised the matter of the investigations by the US SEC case and the Australian Securities and Investment Commission. He said that if their decisions go against the company it would have a major impact on the company’s reputation. The employment of Tom Albanese as CEO, his conduct in the company and his dismissal had raised serious questions about the internal governance process Rio Tinto uses when it comes to recruiting. Mr Albanese had committed a number of actions not necessarily addressed in the SEC case but which were highly questionable. In 2015, Amnesty International had published a io Tintoeport on RT’s investments with a company called Ivanhoe. This was a company which owned the initial rights to the Oyu Tolgoi deposits in Mongolia. The Amnesty International report had never had a response from the company, though there was correspondence between the company and Amnesty International. At the AGM following the report’s publication, Roger had pointed out that he had asked Mr Albanese for details of the transaction under which Rio Tinto had ended up controlling Oyu Tolgoi through a negotiation process involving Mr Albanese but about which the then company Chairman Jan du Plessis and CEO Sam Walsh had appeared to have no knowledge. Mr du Plessis had said he was out of his depth and Mr Walsh had said he had no knowledge of the negotiations which had gone on. This is an anomaly, and it was irresponsible if the board did not oversee the negotiation process under which Rio Tinto ended up in control of Oyu Tolgoi. Roger had been promised a response in May 2015 but had heard nothing back from the company about any process of investigation about this process in which Mr Albanese was central.
81. Simon Thompson said that Rio Tinto believed that the SEC allegations are unwarranted. The case was at a very early stage of discovery and depositions, but the company remained confident that when the facts were presented to a court, they would agree with Rio Tinto that the allegations were unfounded. The Amnesty International report had concerned not Oyu Tolgoi but another Ivanhoe operation in Myamar which was subject to sanctions and was deliberately excluded from the Rio Tinto acquisition. Following the Amnesty International report the National Crime Agency had contacted Rio Tinto for information on why the Myanmar operations were not included in the Rio Tinto purchase. This took place in 2015, and Rio Tinto had not heard from them since, so the company assumed that the National Crime Agency was satisfied with what the company had done.
82. J-S Jacques added that Rio Tinto had bought 10% of Ivanhoe and progressively increased its holding to 51%, and that at each stage of the purchase Rio Tinto had announced it in the public domain.
83. Roger said that Rio Tinto had not yet responded to the allegations made by Amnesty International in 2015 about human rights abuses which occurred around the Ivanhoe-controlled Monywa mine in Myanmar.
84. Simon Thompson said he was sure that Rio Tinto had responded to Amnesty International and he could track the response down and provide it to Roger.
Rio Tinto’s legacy in Bougainville
85. Shareholder Myra Sands asked about the company’s legacy at Bougainville. She said:
86. “The disposal by Rio Tinto of its controlling stake in Bougainville Copper Ltd was far too long in coming, but may surely be welcomed by shareholders.
87. “The president of the provisional Bougainville government now seems to concur with many of the landholders around the ill-fated Panguna mine that BCL is no longer a friend of Bougainvilleans (not that, arguably, it ever was), and will not be allowed to re-start operations. Most recently, the Prime Minister of Papua New Guinea has issued a statement accepting that, if a Bougainville referendum on independence is passed next year, PNG itself will accept the ‘will of the people’. There’s thus much reason to hope that what’s been one of the bloodiest battles for self-determination in the South Pacific since World War II is nearing its end.
88. “Nonetheless, there are many ‘legacy’ issues that risk being left unresolved: ones related to mine site rehabilitation, and multiple accusations of human rights abuses, among them.
89. “Will Rio Tinto acknowledge it has a prime responsibility to fund a thorough clean-up of the mine site, and to return the Panguna area, which BCL ruthlessly exploited and profited from between 1975 and 1989, to a condition suited for truly sustainable livelihoods under an independent government?”
90. Simon Thompson said that Rio Tinto had been forced to leave the mine in 1989 and since that time no-one from Rio Tinto had been back on the site. In 1989 there was no mine closure. The mine was fully in compliance with all environmental regulations, he said, and the company was forced to abandon mine because of civil conflict. “We have not done closure of the mine,” he said, “and we handed it over to Bougainville to enable it to be reopened. We have had no involvement since 1989.”
91. He spoke as if there were no connection between the mine and the conflict which erupted as a direct result of the mine’s existence. In other words, the answer to Myra’s question was a big fat no. The company will not take responsibility for the mess that it left, or the conflict that it caused, or the continuing problems surrounding the Panguna mine. Pontius Pilate again.
Why does the CEO get so much money?
92. Another shareholder asked about the company’s remuneration policy. The CEO was being offered an incentive of 430% of his base salary. His pay will be over £8 million. How could the company justify this?
93. Simon Thompsn said that the board also was concerned about excessive executive pay and rising inequality but that mining was a global business and the company had to pay well to attract the right people to pursue its strategy. J-S’s basic salary had increased by 2.8% in line with others in UK business. In the same year, there had been record returns to shareholders and good progress on all our priorities. [He did not mention whether cleaners or caterers in the company had received 2.8% pay rises. Perhaps they did. I am willing to bet that none of them is earning £8 million, despite the importance of their work.]
Avoiding taxes in Mongolia
94. Mining researcher Richard Harkinson asked about the Oyu Tolgoi project. He said that Rio Tinto had signed an investment agreement in 2009, some of which had been revealed, but that there had been some criticisms from the IMF (International Monetary Fund) regarding the nature of its taxation arrangements. Those arrangements included use of offshore jurisdictions. Work done by Open Oil in Berlin and more recently by SOMO in the Netherlands had talked of $700 million of tax being avoided through complex arrangements involving Canada, Luxembourg, Mongolia, the Netherlands and Delaware in the USA. Richard said he recommended reading the SOMO report. He said that Rio Tinto says that it pays its share of tax. The other investment agreement is the 2016 Doha Agreement, which is not transparent. Richard said that Rio Tinto trucks 25% concentrate to the Chinese border. There were going to be underpasses to protect seven protected species under its biodiversity offsetting agreement with the government, but Rio Tinto had failed because there had been deaths of protected animals. There was a lack of transparency in the company’s tax arrangements and its energy supply arrangements.
95. Would Rio Tinto commit to transparency about the sourcing of renewable energy for Oyu Tolgoi? Civil society was calling for transparency. Would the company clarify whether it still owns any coal assets through South Gobi Energy or other subsidiaries?
96. Simon Thompson replied that Rio Tinto had studied the SOMO report. Turquoise Hill had co-operated with SOMO so it was disappointing that the final report contained factual inaccuracies. The company’s tax arrangements are in compliance with local and international law, so all the tax authorities involved are well aware of the tax arrangements. The IMF had said that the tax arrangement was very favourable for the Government of Mongolia. The government will receive 54% of returns and the private company 47%. This is fair.
97. J-S Jacques added, somewhat smugly I thought, that there had been no 2016 agreement in Doha but a 2015 agreement in Dubai, and that this is on the website of Turquoise Hill, open and disclosed. The agreement in 2009 about the construction of power plants had been made fully transparent. Regarding South Gobi Coal, Rio Tinto had exited its equity stake, and colleagues would be happy to provide full information.
Looking for lithium in Serbia
98. Natasha Posner asked about the company’s lithium project in Serbia. She congratulated the company for discovering the largest lithium deposit in the world. How large was it? What environmental and social impact studies had been conducted? What discussions had there been with local people about its possible impacts and benefits?
99. J-S Jacques said that the name of the project is Jadar. Rio Tinto has another 18 to 24 months of work to do studying the project, including engagement with communities. One element is the development of the battery market. Rio Tinto is looking at the technical and market aspects but has not yet reached decisions. As and when it does it will inform the markets. Last year it had signed another agreement with the Serbian Government.
100. Natasha asked, “So have you have had discussions with local people?”
101. J-S Jacques said that yes, there was an ongoing dialogue, but that it was a small project under assessment.
102. Natasha asked whether local people were fully informed of the drawbacks of the project as well as its possible advantages.
103. J-S Jacques replied, “Yes.”
And then the Chairman called for a poll, and that was that for another year.