The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Q & A with Rio Tinto CEO: industry needs to ‘out’ bad actors

Tom Albanese, Rio Tinto’s CEO, talks to Critical Resource about tackling corruption, socio-political management, and competitive advantage

In a wide-ranging interview, Tom Albanese recently spoke with Critical Resource about the gamut of issues facing the industry and why he sees strong socio-political management as a key to competitive advantage.

These are the main points from the interview, arranged by theme.

The industry can do more to tackle bad actors

“Bad actors in the resource industry that are involved in corruption or make a mess environmentally, socially or from a safety perspective, not only drag their own reputation down, they taint the entire industry. So as an industry we have to do more in terms of outing bad actors.”

“ICMM is one mechanism…Working in partnership with multilateral organisations is also part of the solution. BHP did this with Escondida in Chile in the 1980s, bringing in Rio Tinto, Japanese companies and the International Finance Corporation (IFC). That coalition created a strong foundation for what is now one of the world’s most successful copper mines. Rio Tinto is working with the IFC and Chalco in Guinea, and I have discussed with the IFC the possibility of extending this model into other countries where we operate.”

Best practices bring major competitive advantage

“Engaging with stakeholders and ensuring Rio Tinto meets best practice standards on environmental and social issues definitely brings competitive advantage. If we put in the time to build the right stakeholder engagement structure and build relationships with host governments and communities, we can create a strong support base. That is provided that everything we say is backed up by what we do on the ground.”

“If we can get early access to the world’s diminishing resources, and develop them in a sustainable way like this, we will have a true competitive advantage over anyone else in our sector.”

Even more transparency needed on payments to governments

“We have to be more transparent in what we pay. Rio Tinto was one of the original signers of the EITI and has been publishing cash taxes paid by country since 2008, but more disclosure was needed. The lesson really came to me when we were hit with a mining super tax in Australia last year. We were tagged, unfairly, with an improperly low tax rate, less than 20%. It was a fast moving campaign, and by the time we got audited numbers, which showed that our tax rate was 35%, the damage had been done.”

“It taught me that we need to disclose more information before this type of drama erupts. This year we also published the accounting tax charge and net earnings of each of our main business units. Now we have released that extra information, we can sit down with host governments and have an open and professional discussion over our tax rates.”

New business models needed to meet host country pressures

“In many ways the pressures we’re seeing for rapid development come from host countries. If you find a large resource deposit in a country with a small economy, and you tell the government, which is elected on a three or four year basis, that developing it will take decades, they will say, “Well that doesn’t help my next re-election. What can you give me to show my electorate?” We will never be partisan or take political sides, but we recognise that that is a pressure point. So, how do we – and this goes against our DNA and is something we are grappling with strategically – create smaller, initial production outcomes that allow us to take time over the larger, long term solutions?”

“In Mozambique we will move quickly to develop the Benga coal deposit by rehabilitating an existing structure. But the larger development will require new infrastructure, rail links and a port, and we must take the time to develop those well. We want them last for decades. But by completing a smaller scale project earlier on you meet a lot of expectations. I think that will have to become the status quo approach for our company in the future.”

Social expectations on the industry will continue to increase

“In the 1970s, the resource industry paid virtually no attention to social or environmental issues. It was all about technical prowess and nothing else. During the‘70s and ‘80s, environmental and social activism became progressively mainstream and in the ‘90s we saw it entering even more into mainstream political dynamics. But the most dramatic change in the last decade has been the spread of mobile phones and internet access throughout the world. That hugely increased the amount of information available to the public, and then social and environmental activism became a populist exercise.”

“So the resource industry realised that it had to embrace concepts like sustainable development, or we would lose access to people, capital and resources. Various initiatives, like the ICMM, came out of the ‘90s. But our work here is not complete. Social pressures on the industry are definitely going to increase. I can’t think of a single location where we operate where they are not a key part of our discussions.”

Resource nationalism shows the need to strengthen government relations

“Resource nationalism is a problem for producers and consumers alike. Uncertainty surrounding fiscal regimes means we have to increase capital costs to compensate for added financial risk. This means we have to restrict investment, which ultimately restricts development in these countries, and restricts supply, raising prices for the consumer.”

“The industry can do more about the problem of resource nationalism by increasing our engagement with governments and improving government relations. We have stepped up our engagement with at the local level and with the NGO community, but we have tended to keep a lower profile in government engagements. We need to start getting our voice heard at the government level.”

Getting local people to identify with the company can be very powerful

“We must get local people to identify with the company. For example, at the Sohar smelter, which we commissioned 18 months ago in Oman, we made a commitment for 90% local hire – a target we met two years ahead of schedule. This area was the hotspot in Oman for sort of rioting that took place in the Arab spring. During the riots, the employees at Sohar went to the plant and stayed there, saying “We will not let the rioters near here; we want to protect our jobs.” They didn’t say they wanted to protect Rio Tinto’s facilities, they said, “We want to protect our jobs”. Getting people to identify with the company in that way can be extremely powerful.”

“The old model of perennially managing a project with expats from Western countries is not one that will survive in the future. We’ve got to do a better job of bringing local professionals in. In Madagascar, it took about 15 years of engagement before we could develop our actual facilities, so we had to time to train local people to fill senior positions on our project there. In Mongolia too we are investing in training and skills development. We are hiring local people to work not just in Mongolia, but also on Rio Tinto projects around the world, so they can really get to know our company. That is something we’re just beginning to do, and we need to do it a lot more.”

More diversity needed in the senior management team

“Rio Tinto needs more diversity in its senior management team. The members of the Executive Committee are all Australian, British, American or Canadian; two women, eight men; all 40-60 years old. That is a natural demographic for the sector that we actually have to change. We need a broader range of diversity at that table. It’s not just about ‘ticking the box’, but about getting a better, more engaged discussion going in the committee.”

Partnerships can help tackle the ‘resource curse’

“A large mining project in a small economy can have a negative overall economic impact, by ‘speeding up’ the economy – causing currency appreciation and inflation, undermining the competitive advantage of other industries. Resource companies can do more to ensure their contribution is positive. For example, while avoiding creating dependency situations, we should bring local businesses into our procurement solutions. A lot of the equipment we use at our project in Mongolia is made in the country. We have to show that we are supporting local industries.”

“In terms of the ‘resource curse’ – we can’t tell a country how to govern. But we can work with multilateral organisations like the IMF and the IFC. I have found that useful, particularly on projects in emerging economies. They can advise governments in a more impartial way than a mining company can.”

A progressive position needed on climate change

“Early moves must be made to prevent climate change before it becomes irreversible. That requires companies like Rio Tinto to innovate ourselves out of the problem. We can’t just sit there and wait for something to be imposed on us – we have to be part of the solution, otherwise we will get painted very quickly as the problem.”

“Rio Tinto was an early embracer of carbon capture and sequestration and I do believe that CCS has to be a big, big part of the solution. CCS is probably the most important technological development to solve climate change because, while people don’t like coal, there will frankly be no choice but to continue to use it due to its abundance and geologic distribution and because of the fact that many countries want to increase their electrification. In terms of Rio Tinto’s coal business, we did sell our US coal assets last year, because we see coal as becoming less and less important to the US as shale gas becomes a more significant part of their energy solution.”

“In terms of industry work, I’ve taken a lead with the ICMM, trying to get them to move forward from their initial quite traditional industry approach to climate change, which was to do not a lot. It’s important that ICMM is not seen to be in the climate denying camp. However, I do think that there are many mining associations around the world, particularly in the US, that are going to be far less progressive on the climate change front.”