All images: Rio Tinto.





IT capped off a strong 2017 calendar year with $US8.8 billion in profit, but Rio Tinto is increasingly focussed on reputation and its social license to operate, both here and abroad.


Rio Tinto is riding high on the back of a 90 per cent increase in net profit compared to 2016.

It was a successful year on many fronts, with Rio Tinto’s iron ore division celebrating the opening of the $US338 million Silvergrass mine.

Iron ore prices were also working in its favour, as China’s increased appetite for higher grade ore continues following the nation’s winter steel curtailment policy.

However, like many of its peers, the company’s global ‘social license to operate’ has been put under a microscope.

Last October, the US Securities and Exchange Commission (SEC) charged former Rio chief executive Tom Albanese and former chief financial officer Guy Elliott with covering up multi-billion dollar losses on Mozambique coal assets.

And while Rio has vowed to defend the charges, this is just one issue the company has not quite shaken off.

Rio is also facing pressure in Mongolia over alleged lack of transparency at its Oyu Tolgoi project, recently receiving an additional $US155 million bill from the Mongolian Government after an audit of taxes paid between 2013 and 2015.

Weeks later, the Dutch Centre for Research on Multinational Corporations (SOMO) and Oyu Tolgoi Watch published a report claiming Rio Tinto and Turquoise Hill Resources’ Oyu Tolgoi mine led to nearly $700 million in tax losses for the Canadian and Mongolian governments.

In a letter to SOMO, Turquoise Hill chief financial officer Luke Colton said Oyu Tolgoi and its investors were “committed to tax transparency” and that their tax practices were “not only compliant with local laws, international standards and voluntary commitments, but that the OT operation is substantially contributing to Mongolia’s economy and long term development”.

In WA, ahead of the 2017 State election, the WA Nationals proposed a $5/t iron ore royalty if they were elected, which would have stripped more than $1.5 billion a year from Rio Tinto’s pre-tax earnings.

At the time, WA’s iron ore miners stated that the royalty increase would put jobs and local businesses in jeopardy.

WA Nationals leader Brendon Grylls may have lost his seat after the mining lobby successfully campaigned against his proposal, but new Premier Mark McGowan said the Nationals had tapped into rising anti-mining sentiment.

“During the last election campaign there was a rich vein of hostility that was mined by Brendan Grylls,” Mr McGowan said in April last year, via the ABC.

“I think the mining industry needs to be very aware of that and make sure they avoid the problems occurring again.”

Rio Tinto iron ore has since ramped up its emphasis on local procurement, apprenticeships and fairer supplier payment terms as part of a wider campaign to highlight and boost its reputation as a contributor to society.


Social License

In May 2017 Rio Tinto reduced payment terms for its Australian suppliers to 30 days, after extensions to payment terms a year prior from 45 days to 90 days caused backlash.

Rio also pledged WA and Pilbara Aboriginal businesses would be given greater opportunities to bid for contracts for its Pilbara iron ore mines.

“Rio Tinto’s Pilbara iron ore business has more than 1200 WA suppliers and we make a large contribution to the State economy through local procurement, taxes and royalties,” Rio Tinto Iron Ore chief executive Chris Salisbury said at the time.

“Providing more opportunities for WA businesses to secure contracts will further boost the Pilbara and state economy.”

In July, the company took this a step further, introducing an online procurement portal to enable businesses to register their interest and view job opportunities more easily.

It is also working with the WA Government and South Metropolitan TAFE to pioneer a new curriculum that will prepare students for the mining industry jobs of the future. It has also teamed up with Murdoch University on a STEM roadshow for regional students.

The biggest news though was Rio Tinto’s plan to follow in the footsteps of rival miner BHP footsteps by launching a brand campaign to reshape its image.

Rio Tinto chief executive Jean-Sebastien Jacques recently told The Australian Financial Review, it was planning a series of “local, smart and relevant” advertising campaigns this year in Australia, Canada and Mongolia that would “win hearts and minds”.



“Rio and the whole mining industry needs to have a much more compelling narrative about its contribution to society,” Mr Jacques said.



“We are seen as part of the problem and not part of the solution.

“Our contribution to society is and always has been significant. We need to tell the story in a better way.

“We are pretty often on the back foot. But we are doing so much good stuff.”







IN the fourth quarter of 2017 the Rio Tinto achieved an annualised production rate of 360 million tonnes of iron ore; a result of new production from the Silvergrass mine and its continued automation drive.

Rio’s current iron ore production guidance for the year was between 330mt and 340mt.

When asked in its annual results conference call in February whether guidance could be upgraded to 360mtpa once Autohaul was completed, Mr Jacques said he was not going to “increase tonnage for the sake of it”.

“We want to have significant capacity around the railway, so that gives us the flexibility to go up and down depending on the market conditions; that is the value over volume,” Mr Jacques said.

“We look at it saying, ‘well, if we increase volume what is going to be the impact on prices?’

“And today as we are having this conversation we are very comfortable with the 330mt to 340mt guidance for this year.”

Mr Jacques said Rio Tinto would produce 360mtpa eventually, but would focus on optimising iron ore production to make sure cash flow was maximised; acknowledging that when it adds tonnage, it can have an impact on price.

Further on the automation front, Rio was expanding its autonomous fleet from the current 86 trucks to 140 trucks by 2019 after signing agreements to retrofit existing trucks with autonomous systems.

It is anticipated the retrofit program will help the iron ore business deliver another $500 million of free cash flow annually from 2021.

Rio was also focused on ramp up of the 10mtpa Silvergrass mine after opening the project in August, along with its next big development; the $2.2 billion Koodaideri iron mine.

In May last year, the miner approved investment of $30.9 million to complete a feasibility study of the Koodaideri project, which – all going well – could begin construction as early as 2019 with first ore delivered in 2021.

A final decision on the project will be made following the completion of the study and board review.



Mr Jacques said the company was “in good shape” as it navigated its way through the 2018 year, particularly in regards to its world-class Pilbara iron ore blend.

“We don’t control the market but we are trying to position ourselves in the best possible way and today the Pilbara brand is a reference product in China,” he said.

 “It is a reference product and everybody wants more of it.”

And with growing speculation the changes to China’s emissions policies will be structural, premiums for Rio Tinto’s high grade ore could continue.

“All the indications are moving in the right direction; the environmental policies, the fact that they [China] are making money, they are trying to produce more with a reduced capacity and therefore the need for higher quality product,” Mr Jacques said.

“Our sense is we are moving closer to a structural change but we are always very cautious.

“What it means for Rio Tinto is very simple – as long as we have the right product in terms of cost, in terms of grade and the right relationship with our customer, then we are very well placed.”