London Calling sees the Grey Man Cometh
Published by MAC on 2013-04-22Source: Nostromo Research, Reuters
Chairman Jan holds up Rio Tinto's little red book
At Rio Tinto's 2013 AGM, held in London last week, chairman Jan du Plessis did what none of his predecessors could achieve.
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| West Papuan activists protest outside Rio Tinto’s AGM. Photo: Amy Scaife |
Long gone are Rio's dark knights - notably former Rio Tinto chairmen, Alistair Frame and Robert Wilson - who took such aggressive umbrage at their public detractors.
Now, this urbane, immaculately-attired South African has put the grey back into corporate management. And - like it or not - he's carried many of his staunchest critics with him.
Despite Rio Tinto having thrown away ("written down") a phenomenal US$18 billion or so of investment earlier this year, soon after his arrival at the AGM, du Plessis (metaphorically-speaking) almost succeded in turning lead into gold.
He'd already sacked the guy who was the most dynamic CEO to serve Rio Tinto in recent years. In January this year, Tom Albanese was unceremoniously packed on his way, burdened with the accusation of having brought the outfit close to its knees.
Never mind that the suave Alaskan had only been "following orders", albeit ones for which he himself was partly responsible (especially in the disastrous acquisition of Alcan in 2007).
The scapegoating still stuck.
There were plenty of shareholders present, ready to rehearse auguries of doom. But, when the meeting finally petered out, with many vital issues still to be raised, du Plessis had accomplished his objective.
Effectively, he'd boring the assembly into submission.
The art of engineering complacency
du Plessis has been crafting his skills in carrying "ordinary" shareholders with him for some while, proud that his board and management have engaged in a number of such face-to-face conflabs of late.
But he still needed to placate the many doubting thomases that remain (and who were present in some force at the AGM). To do this, he resorted to a bold argument:
Rio Tinto had survived 140 years; its current misfortunes were a regrettable, but remediable, blip on the balance sheet. In light of such an august history, surely we could wait another year, another five years - or even fourteen - for the prosperity to inevitably return?
It was a beguiling attempt to rally the sceptics, and du Plessis largely succeeded, at least among the "ordinary" shareholders.
Having said this, Rio Tinto still faces many challenges in bringing hardened institutional investors on-board. Its chairman may argue that the company has performed no worse than other leading firms in the mining and minerals sector. But this cuts little ice with banks and other funds which have seen mining equities as a "class" greatly foundering in recent times.
Indeed, when it came to explaining away the huge recent losses sustained on the Mozambique coking coal venture, or continuing failure to secure full control of the Simandou iron ore leases in Guinea, du Plessis seemed on shaky ground. See: Mozambique: Protesters block Vale's coal mine
So, he naturally leaned on his righthand man, Australian Sam Walsh, to make the argument. And the avuncular new CEO had prepared his script well. Despite evidence to the contrary, he claimed to have a good relationship with the governments of both these African countries.
Who, then, could doubt that, like everybody's favourite uncle, Walsh would be delivering at least some of these trinkets before next Xmas has passed?
Fully two-thirds of the two-plus hours of shareholder questioning time related principally to fiscal debt and risks, notably in regard to excessive executive payments.
Whether or not du Plessis hand-picked these interjectors we can't say - he certainly recognised some of them in person. Once on their feet, they were afforded an inordinate amount of time to babble on, much of it spent in regurgitating arguments already made.
Not only did this assist du Plessis to project a patina of his infinite patience in meeting criticism.
It also made him appear sweetly reasonable when he truncated the opportunity forother shareholders who (arguably) had more substantive issues to raise.
True, du Plessis did grant a few of these dissidents some exposure, beginning with two men he'd already met the day before to discuss the huge growing opposition in Alaska to the Pebble Bay venture, in which Rio Tinto currently has a small indirect stake.
Sukhgerel Dugersuren, the executive director of Mongolia's Oyu Tolgoi Watch was also offered space to plead on behalf of herders who will inevitably be profoundly impacted by Rio Tinto's massive Oyu Tolgoi copper-gold mine.
However, as du Plessis deftly steered the meeting to a somonolent conclusion, arguing that shareholders had been given a "fair crack of the ship", he was undoubtedly aware that many important issues were still to be raised.
Not least among these was the allegation, made by a European parliamentarian, that Rio Tinto had exerted pressure on the UK government to resist the extension of EU rules, against bribery by extractive companies at a project level. See: Rio Tinto accused of attempting to dilute EU law on extractive transparency
Dying embers?
On 18 April 2013, a Guardian correspondent summarised the arguments presented by Sukhgerel Dugersuren at the previous day's AGM.
Rupert Neate also referred to "concerns [expressed] about Rio's planned mines in Bristol Bay, Alaska, a controversial iron ore mine in Guinea, and a nickel and copper mine in Michigan". See: Rio Tinto in the dock on environment and human rights
But Neate omitted mention of a cogent protest made on behalf of indigenous and other communities around the highly-controversial Resolution Copper project in Arizona. Nor did he report a representation by the global union IndustriALL over Rio Tinto's parlous relationship with workers in Canada; and a plea made on behalf of the Mirrar people in northern Australia.
Neate's claim that the AGM had been a "fiery meeting" was also somewhat short of the mark.
"Fire" had indeed been in a lot of shareholders' bellies. However, most of this was sparked by alarm at a possible dilution of the company's share value.
It overshadowed the ire expressed by those profoundly concerned at the risks posed by Rio Tinto to the human rights and livelihoods of thousands of its oher so-called "stakeholders".
We hazard a prediction that the sun will never rise again on this company, at least to the
extent it has in recent years.
In fact, du Plessis came close to admitting this, if not in so many words - and got away with it. Many of Rio Tinto's seasoned critics (including ourselves) failed to adequately react.
We didn't point out that the greatest threat to Rio Tinto's future economic prosperity is the continuing fall in Chinese demand for the company's core minerals. It's likely this will never again prop up the company's bottom line to anything like the extent it did during the first decade of the new millennium.
Some attenders at last week's Rio Tinto AGM might have been reassured by Walsh's statement that he's considering further disinvestments, aimed at fitting the firm's suit to a shrinking cloth (See article below) .
However, not one of the controversial projects, against which missiles were justifiably fired at this meeting, appear to be on that list.
Moreover, despite Rio Tinto's rhetoric about tackling adverse climate change, there's no indication that it will claw back its existing heavy investments in coal and uranium.
In the short-term, Rio Tinto's Grey Man has won the day.
Rio admits error in Alcan purchase
ABC News
19 April 2013
Rio Tinto says its purchase of the Canadian aluminium producer, Alcan, before the global financial crisis was bad for shareholders. The acquisition in 2007 left Rio with a $40 billion debt and the company has since had to write down the value of the assets by billions of dollars. Rio chairman Jan du Plessis told the company's annual general meeting in London that the acquisition was wrongly timed
Sue Lannin
Transcript
TONY EASTLEY Angry investors have slammed the Rio Tinto board at the company's annual general meeting in London.
It was the first showing for new Rio boss Sam Walsh who was forced to defend the company's investment strategy.
The company told investors it expects commodity prices to fluctuate for some time to come. Yesterday in Australia, before the London meeting, Rio's shares were savaged. They dived nearly 5 per cent as investors sold off mining stocks spurred on by fears about global growth particularly in China.
Here's resources reporter, Sue Lannin.
SUE LANNIN: If Rio Tinto boss Sam Walsh was expecting a tea party at his first annual general meeting he certainly didn't get it.
Jan Du Plessis, the company's chairman, bore the brunt of shareholder anger.
RIO TINTO SHAREHOLDER 1: To suggest as you did in your opening statement that you are doing well when your sales are down and you've made a resounding loss is, I suggest, outrageous.
JAN DU PLESSIS: We significantly outperformed the industry so I put it to you, we actually have done well for shareholders, better than the industry despite the losses on Alcan.
SUE LANNIN: Investor after investor in London criticised Rio Tinto's investment strategy. They were most angry about the $14 billion worth of write-downs which led to the resignation of former chief executive Tom Albanese and a $3 billion annual loss.
RIO TINTO SHAREHOLDER 2: Given that he is still on the company's payroll, he was the chief executive for the whole of the period covered by the 2012 report, where is he? Why isn't he here to answer up?
SUE LANNIN: Rio Tinto refused to let the ABC in to film the AGM even for a short time at the start. AM watched the meeting via the webcast on the company's website.
Despite the roasting from investors, Jan du Plessis told the meeting he was glad to hear their comments.
JAN DU PLESSIS: You clearly understand the business well so I thank you for your question.
SUE LANNIN: The investor anger came despite more mea culpas from the company.
Mr du Plessis says Rio Tinto made a mistake when it bought Canadian aluminium producer Alcan before the global financial crisis hit.
JAN DU PLESSIS: We therefore have to acknowledge that the acquisition has had a significant negative impact on shareholder value.
SUE LANNIN: He told investors to expect more volatility in the price of commodities like iron ore.
JAN DU PLESSIS: We expect continuing volatility in the short and medium term.
SUE LANNIN: Sam Walsh told investors Rio will continue to rein in expenses and he pointed to the high cost of doing business in Australia.
SAM WALSH: Wage rates in the Australian mining sector have increased by 25 per cent since 2008, outstripping inflation by 10 per cent. At the same time labour productivity has decreased.
SUE LANNIN: Rio Tinto faces more tough times, angry investors and volatile commodity prices aside. It's already warned that copper production and earnings will be hit by last week's landslide at a mine in the US.
TONY EASTLEY: That's resources reporter, Sue Lannin.
Rio Tinto CEO sets new cost cuts as projects go ahead
Reuters
16 April 2013
SYDNEY - Rio Tinto is setting fresh cost-cutting targets under its new chief executive as the global miner faces a sharp downturn in demand for industrial commodities.
"My streamlined executive committee structure is now in place and demanding targets for 2013, including for cash cost savings," Sam Walsh, who was named chief executive in January as part of a senior level shake up following a series of disastrous investments, said in a statement.
The world's second-biggest iron ore miner after Brazil's Vale said, in its quarterly production report, it was still on track to boost output capacity of the steelmaking material to 290 million tonnes this year under a multi-billion-dollar expansion plan.
The company said its copper mine in Utah, the second-biggest source of copper in the United States would see a drop in refined metal output by about 100,000 tonnes based on an early assessment of damage caused by a cave-in last Wednesday.
The loss due to the accident, in which no employees were reported injured, could help combat a mounting global supply glut of copper that was weighing on the metal's price, according to analysts.
The company was also hopeful it could commission its giant Oyu Tolgoi copper and gold mine in Mongolia by the end of June, pending resolution of outstanding issues with the Mongolian government over local employment and taxes.
Rio Tinto and the Rhetoric of Respect - Notes from the 2013 AGM
19 April 2013
"Your mining is not unproblematic." That understatement nicely summed up the Rio Tinto Annual General Meeting held yesterday morning in London. But by the time a representative from the London Mining Network had uttered it near the end of the question period, Rio Tinto Chairman Jan du Plessis appeared to have stopped listening.
Up to that point it had been a lively and contentious meeting. Shareholders were miffed about the company's blunders in Mozambique and the Alcan write off and confused by the executive compensation scheme. Some wanted to know why Tom Albanese wasn't there to answer for the company's troubles in 2012, when he was still CEO; another said it was time to stop scapegoating Albanese, and hold the board accountable: "every few years," he said, we have "a resounding chaotic blunder...What has the board done?"
They were not the only ones to talk about blunders and bad decisions that put the company at risk. Activists, environmentalists and indigenous leaders who attended the meeting testified to the destructive effects of Rio Tinto's large-scale industrial mining operations on the land, local communities, and traditional ways of life. These speakers all said they and the groups they represent would continue to oppose the company. In fact, their opposition is only growing; a couple even suggested that Rio Tinto could start cutting costs (a big priority for the mining giant right now) by abandoning or divesting from places where mining operations are not welcome. The message to shareholders was clear: protests, lawsuits and continued local opposition will put projects at risk, disrupt schedules and cost money.
Did the board get the message? Not likely. When an Alaskan Yupik elder spoke in opposition to the Pebble Mine project and urged the company to divest, Rio Tinto CEO Sam Walsh thanked him for his "sincerity" and both du Plessis and Walsh complimented the elder on how "articulate" he was. It was a patronizing gesture, a pat on the head, not serious engagement. There were some further comments shouted from the audience but du Plessis shut the discussion down and moved to the next question.
Du Plessis repeated a talking point about how much he respects those who had to travel long distances to attend the meeting, but (as I saw it) this was an effort to recover from a stumble. Only minutes earlier he had impatiently dismissed a question about the Eagle Mine - citing "shoddy environmental protections," poor design work, "fraudulently issued permits," and the fact that the mine desecrates ground sacred to the Keweenaw Bay Ojibwe - as "not particularly new." He was having none of it.
There was lots of talk at the meeting about respect, and I'm afraid "respect" is becoming a word corporate boards use to deflect criticism and politely dismiss human rights, environmental and ethical issues. (Whether this is the unfortunate rhetorical fallout of the Ruggie Protect-Respect-Remedy human rights framework is a question for another day.)
For example, when asked what Rio Tinto has done to improve the lot of miners in South Africa, du Plessis responded that the company has developed "very healthy, respectful relationships not just with employees but with the community" in its South African operations. But what sorts of real commitments do those relationships entail? While the company is "not anti-union" -Walsh rejected that characterization - it nevertheless wants a free hand to "maintain direct contact with all our employees" for the sake of safety, efficiency, and (Walsh iced the cake with this) "value."
One participant said that he couldn't see how Rio Tinto reconciled its "corporate rhetoric" with its "actions on the ground." At Oak Flat in Arizona, he went on to explain, Rio Tinto is trying to gain control of public lands sacred to the Apache. The reply was (again): "we will be respectful." The company would like to "open up direct dialogue" on the Oak Flat project; the trouble is, dialogue can only be direct and truly respectful if the other party actually has an opportunity to be heard and - this is important - heeded.
Dialogue, community engagement, respect, responsibility - all these were floated at the meeting as remedies to the many problems communities face when Rio Tinto moves in. But what doesn't get taken into account is that the company and these communities are not on equal footing. Nowhere near it. Rio Tinto has enormous influence and power, billions to invest, and - it should not be forgotten - shareholders who want a return on their investment.
So, during the question period, a woman representing Mongolian herders who will be displaced and deprived of water by Rio Tinto's Oyu Tolgoi project spoke eloquently about a looming "catastrophe." She had a soft voice that trembled a little as she spoke. Walsh listened, thanked her for traveling all that way to speak, and then replied that in Mongolia (as in Michigan and elsewhere) the company has "developed a participatory environmental water monitoring program." If you see something, say something, I guess.
Never mind that she had just finished telling him about the threat of toxic leaks, environmental damage, pollution and river diversion. The IFC and "the people of Mongolia," Walsh said, will hold Rio Tinto to account. He can't really believe they will. The community of herders has little recourse and not even a fraction of the power Rio Tinto has; and Oyu Tolgoi, when completed, will account for 36 percent of Mongolia's GDP. The scales are hopelessly tipped in Rio Tinto's favor.
Maybe the question period of a shareholders meeting is not the place to have constructive dialogue on serious issues. Maybe those conversations have to happen after the meeting is over, or even behind closed doors. But if and when they do happen, will Rio Tinto really be listening?