Rio Tinto's Ghost From the Past
Rio Tinto Group has fired two executives over a $10.5 million payment relating to a vast iron-ore mine in Africa. The cost to a reputation that took two decades to build could be a lot higher.
The company terminated its energy and minerals chief executive officer, Alan Davies, and Legal & Regulatory Affairs Group Executive Debra Valentine on Thursday over that sum connected with Simandou, the project in Guinea that's being sold after 19 years in development. The payment to Francois de Combret, a consultant who helped in negotiations to win back parts of the project that were assigned to rivals, had been discussed in leaked emails with former CEOs Sam Walsh and Tom Albanese. (Davies said Rio had no grounds to fire him and that he will take legal action.)
There's a grim irony that Rio Tinto, of all companies, should be in this situation. Under former Executive Chairman Robert Wilson, it put itself at the forefront of efforts to pull the mining industry out of the shadow of corruption, environmental degradation and abuse of indigenous rights that had surrounded it in the mid-1990s.
"If we were to give in to these sort of temptations we would likely damage our business in the long run," Wilson told an anti-corruption conference in 1999. "Once the door had been opened to corruption it would be difficult to resist further demands."
Wilson's intent was admirable, but it will take more than speeches and social-responsibility reports to put such behavior firmly in the past. Mining companies ultimately go where the mineral reserves are, and in many cases that will take them to countries with a less-than-savory reputation.
Take bauxite. The aluminum ore is a core part of Rio Tinto's development plans under the current chief executive officer, Jean-Sebastian Jacques, with a $1.9 billion project green-lighted in northeastern Australia last year. If it wanted to go to the place with the richest endowment of bauxite globally, however, the company would find itself in Guinea, which has about 26 percent of the world's reserves and is home to the Sangaredi mine, in which Rio Tinto has a 23 percent stake.
It's a similar pattern the world over. While a substantial share of mineral reserves can be found in countries like the U.S., Canada, Australia and Chile, which tend to rate highly on governance measures such as Transparency International's Corruption Perceptions Index, an equally significant slice lies in countries such as South Africa, Russia, Indonesia and smaller developing nations with decidedly dicier reputations.
That's no excuse for companies that give in to temptation. Quite the opposite: If there's one thing the mining industry ought to have learned to get right over the past few decades, it's how to do business in troublesome places without becoming part of the problem.
The first step is knowing when to walk away. The mining industry has become increasingly focused on developing the geologically best "tier one" assets globally, but that ambition puts it in a bind, because sometimes the best assets are in the worst places.
When you've already spent close to $3 billion on a project, the temptation for an executive to put down a few million more to keep things moving must be substantial -- but it must be resisted. Corruption is a business like any other, and it will flourish as long as companies are willing to pay for its services.
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