ALEX BRUMMER: Rift between chairman Simon Thompson and two of Rio Tinto’s most powerful independent directors presages a bumpy ride ahead
When Rio Tinto slashed the financial rewards of key executives last month over the destruction of the Juukan Gorge ancient Aboriginal rock shelters, the £58billion UK mining group hoped it would be the end of the matter and it could get on with the job of extracting iron ore.
But it is increasingly clear that Rio chairman Simon Thompson is under enormous pressure from key investors and from senior members of his own board over his flaccid handling of the catastrophe.
Late last month, Rio said it was slashing the bonuses of key executives with direct responsibility for the archaeological catastrophe.
Chief executive Jean-Sebastien Jacques was docked £2.7million, the boss of iron ore operations Chris Salisbury and Simone Niven each forfeited £500,000 of bonuses. Full details will not be known until the release of the group’s 2020 annual report.
Set in stone: It has emerged that Rio Tinto recognised that the blast would cause problems with the Puutu Kunti Kurrama and Pinikura peoples before it took place
The pusillanimous response to the destruction of a national monument dating back 46,000 years has put Rio on a collision course with the £99billion AustralianSuper pension fund, which has told Thompson that the penalties are an inadequate punishment for the destruction of one of Australia’s most significant heritage sites.
Another Aussie fund HESTA has described the Juukan Gorge disaster as a ‘wake up’ call to the way in which big mining firms operating in Australia engage with First Nations communities. In Britain, top ten investor Legal & General has spoken out about Rio’s handling of the incident.
It has emerged that Rio Tinto recognised that the blast would cause problems with the Puutu Kunti Kurrama and Pinikura peoples before it took place, and employed a top legal firm to contest legal challenges. Former Rio chief executive Sam Walsh told a parliamentary committee that he had ordered the caves to be preserved in 2013, a claim refuted by the company. Rio Tinto’s less than robust response to a disaster with huge ramifications for the reputation and future operations in the group’s most important mining territory is understood to have erupted into a boardroom row.
Two senior non-executives, former Centrica chief executive Sam Laidlaw and the former finance director of Royal Dutch Shell, Simon Henry, have argued for much stronger disciplinary action against all those involved in poor decision making. The fear is that the affair has undermined Rio Tinto’s efforts to portray itself as meeting the rules of ESG investing. The objections of the powerful AustralianSuper could lead to a bareknuckle fight with other key investors.
The rift between former Anglo-American executive director Thompson and two of Rio’s most powerful independent directors presages a bumpy ride ahead for the board and shareholders.
Long life bonds
How will it be paid for? That is the question often heard about Britain’s mounting economic costs from the pandemic.
With a financing bill of £515billion for the current 2020-21 year (including repayment of existing gilts), there is a mountain to climb. The Government has already shown flexibility by expanding the ceiling for national savings. There are other things that could be tried.
This week the German government issued a ten-year £5.8billion green bond which was oversubscribed six times over after it offered a premium to the equivalent regular bond. It also gave investors the right to switch into a parallel conventional bond should market conditions change. Austria launched a 100-year bond in June offering a yield of 0.88 per cent, which in an era of negative interest rates is a decent return.
Former Lombard Street economist Gabriel Stein suggests with low interest rates stretching into the distance it might be time for governments to resurrect the concept of Consols, bonds without a date of maturity, first issued by the Government in 1751. The last such Consol – War Loan from the Second World War – was finally redeemed by former chancellor Gordon Brown in 2006.
There are funding choices other than turning on the printing presses.
Here is a suggestion for super-fit founder of The Hut Group, Matthew Moulding.
He could follow the lead of a Japanese sushi chef seeking to rebuild sluggish demand in the face of Covid-19.
The chef has put in place an online delivery service called Delivery Macho where shirtless bodybuilders bring the finest, fresh sushi to your door. What a great way to promote The Hut’s Myprotein.