Rio Tinto still to settle $400m Pilbara royalty row after 18 months
Rio Tinto is yet to settle a $400m royalty dispute with the traditional owners of a major Pilbara iron ore mine more than 18 months after identifying significant underpayments.
Rio Tinto is yet to settle a $400m royalty dispute with the traditional owners of a major Pilbara iron ore mine more than 18 months after identifying significant underpayments to the Gumala Aboriginal Corporation.
The ongoing argument over the extent of Rio’s underpayments under the Yandicoogina Land Use Agreement risks overshadowing the 25th anniversary of the landmark royalty deal in March, and is the backdrop to the company’s efforts to modernise other Pilbara royalty agreements with traditional owners.
At the same time, Rio is also seeking to convince sceptical communities surrounding a proposed lithium mine in Serbia and Indigenous communities opposed to a new copper mine in Arizona in the US – along with investors and stakeholders globally – that it can be trusted as a steward of heritage sites and sensitive environmental areas.
The dispute between Rio and the GAC over payments due from the Yandicoogina mine first flared in mid-2020, when Rio identified more than $40m in underpayments under the country’s oldest royalty deal with traditional owners, as the company scrambled to deal with the fallout from its disastrous decision to blast 46,000-year-old heritage sites at Juukan Gorge.
But an audit conducted on behalf of GAC in 2021 claimed the underpayment could have been worth up to $400m over the life of the agreement – with Rio’s best offer to resolve the dispute believed to be worth less than half of the GAC claim.
It is understood Rio has put about $150m on the table to resolve the dispute – more than three times the amount the miner first identified as the likely underpayment – but the settlement offer has so far been rejected by GAC.
A spokesman for Rio said the talks with GAC to resolve the impasse “have been constructive to date and we are continuing to engage with them in an effort to resolve this matter”.
Last financial year, after iron ore prices hit record highs above $US230 a tonne in May 2021, Rio Tinto handed over $37m in royalty payments to GAC, the highest levels paid in more than a decade. Analyst consensus estimates published by Bloomberg put Rio’s after-tax profits in 2021 – set for release in February – at $US21.6bn ($30.9bn).
In 2021 Rio produced 56.9 million tonnes of Yandicoogina fines from the mine covered by the GAC agreement.
The benchmark iron ore price averaged $US132.3 a wet metric tonne in the period, although most of the ore shipped from Yandicoogina is a lower grade product averaging just under 59 per cent iron, and would have been sold at a discount to the benchmark price.
The lengthy negotiations risk overshadowing the 25th anniversary of the signing of the Yandicoogina agreement between GAC and the mining giant, one of WA’s oldest royalty deals between native title holders and a major mining company.
Unlike modern agreements, the Yandicoogina deal is calculated on the basis of ground disturbance at the mine and its surrounding area – with some adjustments for the iron ore price – and is not a pure royalty agreement in which payments are made on the basis of tonnes of iron ore extracted and sold.
The current dispute surrounds differing interpretations of “disturbance”.
Rio has traditionally relied on a narrow definition of how much ground has been disturbed at Yandicoogina.
Its initial $40m cheque for underpayments in mid-2020 – returned by GAC – is believed to have been based on a reinterpretation of the formula to include infrastructure necessary to support the mine.
GAC’s audit was based on a broader interpretation of what land within the boundaries of the agreement has been disturbed, and is believed to argue that compensation should be paid on ground Rio considers to have only been “partially” affected by its operations.
The slow progress resolving the dispute is being closely watched by other traditional owner groups that have agreements with Rio, sources say, amid concerns expressed to The Australian across multiple traditional owner groups that the company’s “reset” of its relationship with Indigenous communities could stall if the iron ore price falls and puts pressure on margins at Rio’s biggest profit centre.
At the same time that Rio and GAC are negotiating a settlement to the royalty dispute, they are also in talks to modernise the broader Yandicoogina Land Use Agreement to base future payments on iron ore sales rather than ground disturbance.
In December GAC told its members it was still to agree a royalty percentage with Rio, and its negotiating team would consider calls from traditional owners for the corporation to be issued stock in the company as partial payment for royalties, and for GAC to pressure Rio to meet Indigenous employment targets included within its agreements.
In addition to talks aimed at modernising the GAC agreement, Rio says it is in detailed discussions with a second traditional owner group over a replacement Pilbara land-use agreement.
“Engagement protocols to guide the modernisation discussions have been executed or endorsed with five traditional owner groups,” Rio said in its December quarter production report, released on January 18.
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