Rio Tinto’s retreat from Russia could be more complex than most as Worley also starts exit

Finding an alternative to Russian oil in landlocked Mongolia poses a tricky problem for Rio, and it has no easy way to force a Russian aluminium giant out of its Australian operations.

QAL’s alumina refinery in Gladstone, Queensland. Russian aluminium giant Rusal, which holds a 20 per cent stake in the company’s Queensland Alumina business. Picture: AAP

Rio Tinto has beat a hasty retreat from comments made by the company’s copper boss implying the mining giant could struggle to ditch business relations with Russian oil titans, as more Australian corporate majors cut ties with Russia over the Ukraine invasion.

Contracting giant Worley said the company had also begun “the safe withdrawal” of services in Russia, and would not enter into new contracts in the country.

Worley said its business in Russia was “not material” to its ­financial returns, despite the company having previously touted itself as a “leading contributor” to the development of new oil and gas projects in Russia and satellite states in Central Asia.

Its exit of contracting services in Russia, mostly clustered around the oil projects on the energy-rich Sakhalin island group, follows that of its big oil and gas clients such as Exxon and Shell, which are minority partners in the Sakhalin fields.

Worley’s retreat from Russia looks to be relatively easy compared to that of Rio, which said on Thursday it was “in the process of terminating all commercial relationships” it has “with any Russian business”.

Rio was forced to draw back from comments made by copper boss Bold Baatar at a US conference on Wednesday, after the senior executive told reporters the company’s massive Oyu Tolgoi copper mine could struggle to find alternatives to buying Russian oil for its energy needs in Mongolia.

“While Rio has begun looking for alternative fuel sources for Oyu Tolgoi, the company does not believe it can stop buying from Russia altogether,” Mr Baatar said.

Oyu Tolgoi sits closer to Mongolia’s border with China than it does to Russia, and sources much of its day-to-day supplies from Chinese companies.

But China’s winter energy crisis exacerbated ongoing issues in sourcing diesel from China compared with Russian sources and Mr Baatar is understood to have been referring to that issue in his comments given Mongolia is landlocked between its bigger neighbours, making it difficult to source materials from outside ­either of the two countries.

And Rio also faces substantial problems in exiting its Australian partnership with Russian aluminium giant Rusal, which holds a 20 per cent stake in the company’s Queensland Alumina business.

Despite a statement from Rio on Thursday that it was “in the process of terminating all commercial relationships it has with any Russian business”, Rusal is not yet the target of any sanctions by the Australian government or its allies, and Rio lacks any obvious means of forcing Rusal out of the QAL partnership if it is unwilling to exit voluntarily.

Rio’s aluminium team has been working to reduce the impact of possible sanctions on Russian businesses for years, after QAL ran into troubles when Rusal was last the target of international sanctions in 2018, when the US slapped bans on the Russian aluminium giant over Vladimir Putin’s interference in the 2016 presidential election.

QAL is run by its own management company rather than being operated by Rio.

But the combination of the 2018 sanctions and the then-terms of the agreement between Rio and Rusal meant no major investment decisions could be made in the joint venture – including those required for major maintenance campaigns at the company’s Queensland alumina refinery.

While those sanctions were eventually lifted in early 2019, when Russian oligarch Oleg Deripaska gave up control of Rusal, it is understood the lingering impacts of failing to conduct maintenance shutdowns in the period are still being felt at the ageing refinery.

That problem is unlikely to be repeated if Rusal is hit by new bans as a result of Russia’s invasion of Ukraine.

Since then Rio and Rusal have progressively renegotiated the terms of the agreement that covers QAL, to avoid the worst impacts of further sanctions on Rusal’s global operations.

Rio now has “step in” rights under the current agreement, ­allowing it to assume control of QAL as if it were the sole owner of the plant while the sanctions remain in place.

That means Rio could make any necessary investment decisions, and also take charge of selling the 20 per cent of QAL’s output Rusal is entitled to under current arrangements.

It is believed the proceeds from those sales would be set aside until Rusal’s legal position in Australia was clarified.

But even recent revisions of the joint venture agreement are not believed to allow Rio to force Rusal out of QAL if it does not wish to exit, and the fix is only likely to buy Rio and Rusal a passage through a short-lived sanctions campaign.

The agreement between the two companies is renewed on an annual basis and, if a new agreement cannot be signed by the end of the year, would expire by May next year – potentially leaving QAL and its estimated 500 employees in legal limbo.

Corporate activist group The Australasian Centre for Corporate Responsibility welcomed the moves by Rio and Worley.

ACCR director Dan Gocher said both companies should be commended for their decisions, but said more detail was needed on Rio’s plans to distance itself from its joint venture partner in QAL. “Following Russia’s invasion of Ukraine, all Australian companies should sever relationships with companies owned or part-owned by oligarchs aligned with … Vladimir Putin,” he said.

“We look forward to seeing more detail about the implications for Rio Tinto’s Queensland Alumina joint venture.”

Worley shares closed up 12c at $12.68 on Thursday, with Rio down $9.27 at $110.61.

Originally published as Rio Tinto’s retreat from Russia could be more complex than most as Worley also starts exit