Jakob Stausholm’s plan to give Rio Tinto licence to operate again
On a rainy early morning in London, Rio Tinto chief Jakob Stausholm set out how he intends to bring the miner back in from the cold. The centrepiece of strategy day for investors is a $US7.5bn ($10bn) investment in ESG to shift the dial.
Make no mistake, by ESG, this is not just about the environment, although that was the thrust of the presentation. For Rio Tinto, this is about the environment, it is about social and it is about governance: E.S.G.
After the disaster at Juukan Gorge and the departure of the previous CEO and two other top executives, the company’s relationship with local communities and Indigenous groups and its own internal governance have been under a pall.
Stausholm, who took the reins in January, will need to address all three parts of this well-worn acronym to regain what he calls impeccable ESG credentials.
At the same time, he must steady the business, reboot morale, drive core operations harder and deliver on the growth opportunities like copper and battery minerals acquisitions.
The new ambitious targets around energy transition to reduce Scope 1 and 2 emissions by 50 per cent by 2030 and a 25 per cent reduction by 2025, five years earlier than the previous target, are a step change.
In a way they had to be. Partly this is because the transition race is getting faster. Andrew Forrest’s Fortescue Metals in particular is setting a new pace with a net zero 2030 target.
But importantly this energy policy shift is also asking the market to look forward, not backwards.
How much of the strategy has been driven by shareholders?
“That’s an interesting one,” said Stausholm, explaining that the more important investors have been engaged deeply on future proofing what are agreed to be strong assets.
“Everything we produce will be required for the energy transition and beyond. The world needs steel. It just needs decarbonised steel. That is the kind of conversation I have had.”
Internally, Stausholm says the team came to the view there is genuine opportunity for Rio in energy transition. And that opportunity to generate extra demand for product far outshines the challenges of investing and decarbonising the business.
The $US7.5bn will be spent between next year and 2030, with $US500m annually in the first years, then ramping up, and with a weighting to the Pilbara iron ore business.
By far the heaviest emitters in the whole group are Rio Tinto’s two big aluminium smelters on the east coast of Australia at Tomago and Boyne Island. Unlike the company’s Canadian smelter they rely on fossil fuels and not hydro energy for power. Stausholm says decarbonising them will take renewables to a new scale and will depend on working with partners as well as state and federal governments.
The smelting process itself uses carbon anodes that also create emissions and there is genuine excitement around the ELYSIS technology where Rio is partnering with Alcoa in Canada to replace the anodes.
“It’s clear that by 2030 we will need to have decarbonised our east coast smelters and refineries. We think it can be done. If we get ELYSIS to work so we go away from the carbon to inert anodes in the smelters … that would have zero impact by 2025, but it could have an impact by 2030.”
Stausholm acknowledges the operational issues that have crept into the business and a good part of strategy day for investors was spent explaining the systemic effort to address these issues.
In Western Australia the setback from Juukan, and the serious Covid border challenges, were a double hit on the iron ore business. It there was any time that a global CEO needed to travel freely, it was surely Jacob Stausholm this year.
The Pilbara team are trying to complete four billion-dollar projects and Stausholm is at pains to stress the time being spent with the local communities, with different approaches to blasting and other operations.
“We are just working so close and hand-in-hand with the traditional owners,” he said. “It has meant we have done a lot of renewal of mine plans.
“It’s without dispute, we have to do it, we want to do it and do it in the right way. Does it have an impact on us? Yes, but what we are doing here is the right thing and I feel good about that.”
The price Rio has paid for the Juukan disaster reaches far beyond Australia to some of its most promising growth projects, like the Resolution copper mine in Arizona. “I’m just doing my best, quite frankly,” says Stausholm. “I’m just back from three weeks in North America. I went to Arizona to Resolution. I met with six tribal leaders and engaged with them. Actually, it was really good engagement.
“Obviously Juukan Gorge has not helped us. It has dented our reputation and rightly so. But it comes down to people and interaction. The only thing I can do is throw myself 100 per cent into it and the whole executive team is 100 per cent committed on being fully dedicated.”
Stausholm says Resolution’s tribal leaders want to see the mine developed. “It can provide a lot of employment to an area that lacks employment if it can be developed in the right way but we have to be very respectful to all the first nation people out there.”
Optically, it was strange to see the resignation of Peter Toth, Rio’s strategy chief on Monday, just the day before the corporate strategy day. He moves to a similar role at gold miner Newmont and his existing role is to be divided between the executive.
The team at Rio Tinto have much to prove. Many have strong commercial backgrounds but less operational and grassroots expertise. The appointment of Bold Baatar, a Mongolian, to run global copper was a welcome move. The miner’s massive Oyu Tolgoi copper project continues to promise, but in the end, surely a deal that swaps the Mongolian Governments equity in the project for upfront royalties has to be the solution.
Again, not easy, but Baatar was both chair of the Mongolian Stock Exchange and the Mongolian Mining Association.
“If there is one highlight in the first half, I do think we have made a big shift in how we engage externally, as we intend to,” said Stausholm. “But that doesn’t mean that we have fixed. It’s a multi-year journey.”
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