Rio Tinto Exits Leave Bigger Problems Behind

(Bloomberg Opinion) — An explosion that destroyed a 46,000-year-old sacred Aboriginal site on a Rio Tinto Group iron-ore mine in May has now ripped through the top ranks of the company.

Chief Executive Officer Jean-Sebastien Jacques, iron-ore boss Chris Salisbury, and corporate-relations executive Simone Niven will all leave the company, Rio Tinto announced Friday.

It’s an overdue sign that the board is finally getting to grips with the issue, after seemingly thinking they had solved it with a review and the scrapping of bonuses last month. The company had to “move on” if the three executives didn’t have the confidence of “critical stakeholders,” Chairman Simon Thompson told David Stringer and Thomas Biesheuvel of Bloomberg News. The uproar that followed suggests that they not only failed to realize the seriousness of the act, despite the company’s own archeological surveys of the Juukan Gorge site, but also took poor advice on how to handle the aftermath. Being forced to revise their decision is the worst possible outcome.

The incident betrays a worrying disconnect between decades of well-meaning statements and the company’s true priorities, as we’ve argued. Robert Wilson, the executive who created the modern Anglo-Australian company through a 1995 merger, was a vocal advocate in the early 2000s for improving miners’ records on corruption, environmental performance and landowner relations.

That always had to be taken with a pinch of salt. Ties between landowners, governments with royalty rights over mineral resources, and the companies that provide the labor and capital to extract them will inevitably be zero-sum. Any margin that miners can squeeze out to enrich their shareholders is money not going to owners of the resource. Any time that shareholders are feeling happy, landowners and governments are likely to be feeling short-changed.

Juukan Gorge, though, laid bare how the legal and financial dealings between landowner groups and mining companies in Australia’s Pilbara iron-ore region are still mired in a history of exploitation. That issue can’t be waved away with positive mood music alone.

Jacques’s most fatal decision was probably taking Indigenous heritage responsibility away from the operational, on-the-ground side of the business and putting it under London-based Niven. That act made it harder for timely information to get to the right people, and may have precipitated the poor communication that led to the blast. More pointedly, it exposed the vast gap in the power relationship by treating the rights of Indigenous groups as a matter of PR. Acknowledging the traditional owners of the land before every shareholder gathering will ring hollow for many years to come. 

While Jacques has delivered on share buybacks, it’s harder to argue that he has made a great success of managing the contradictions between his company and landowners and governments, at Juukan Gorge, or elsewhere. The copper mine where his negotiating skills helped propel him to the top job – Mongolia’s Oyu Tolgoi — has encountered numerous speed bumps and political conflicts. The tricky underground extension there is running as much as 30 months late and will cost up to a third more than planned. 

The other major item on his agenda when he took over has similarly remained unresolved: cleaning up the mess of alleged corruption that the company had got itself involved with in Guinea. Just four months after Jacques started in July 2016, the company alerted U.K. and U.S. authorities to email exchanges involving his two predecessors, which touched on payments relating to  Simandou iron ore deposit. Those investigations are ongoing four years later. Efforts to sell the project floundered.

Any successor to Jacques will need to prioritize fixing these issues. Homegrown candidates for the top job include Arnaud Soirat, who runs copper and diamonds, or Alf Barrios, the globe-trotting head of aluminum. If Rio wants to appease those who argue that much of its problem comes from having a chief executive too disconnected from the Pilbara, it could choose Simon Trott, from Western Australia, who’s currently in the newly created role of chief commercial officer. Prioritizing Mongolia and a copper-heavy future might point to energy and minerals boss Bold Baatar, a native of the country.