Rio warns Labor’s IR changes could reignite workplace tensions

Article by Peter Ker courtesy of the Australian Financial Review.

Rio Tinto chief executive Jakob Stausholm says the Albanese government’s industrial relations reforms could reignite the workplace tensions of the 1980s as he flagged a further rise in the cost of producing Australian iron ore.

Australian iron ore provided Rio with close to 92 per cent of its $US11.8 billion ($18 billion) underlying earnings over the past year, but the cost of producing each tonne in 2024 will be up to 77 per cent higher than just six years ago.

The continued cost escalation in the Pilbara comes at a time when Mr Stausholm said inflationary pressures were easing in many other parts of the world.

Mr Stausholm warned the government’s embrace of multi-employer workplace agreements and its same job, same pay labour hire changes were causing concerns.

“We are concerned with the development in the [industrial relations] legislation in Australia because the history scares us. We had a situation in the early ’80s where we had 100 strikes a year,” he said. “We have very good co-operation with our staff, we don’t have that environment today, but we are concerned, and we are doing everything we can to try and protect that co-operative environment.”

The comments come after a year in which the pilots who fly mine workers to the Pilbara have repeatedly threatened to strike, while train drivers serving rival iron ore exporter BHP also used the threat of industrial action to leverage a lucrative new pay deal.

But Mr Stausholm said he had not seen any sign the Pilbara – home to Australia’s most lucrative export industry – was becoming more unionised.

Rising costs
Rio’s iron ore division was once the world’s lowest cost producer, but it has lost that mantle to both BHP and Fortescue in recent years as its ageing mines require longer haulage distances, driving up unit costs.

Rio’s mines in the Pilbara produced iron ore at an average price of $U21.50 a tonne in 2023; as recently as 2018, Rio’s unit costs in the Pilbara were $US13.30 a tonne. Rio warned Pilbara unit costs would rise again this year to between $US21.75 and $US23.50 a tonne because of higher parts costs and labour expenses, and longer haulage distances.

But in other parts of the world, Mr Stausholm said those pressures were abating.

“Finally, the world has got its supply chain in order after COVID,” he said. “What you are seeing now is supply chains have, kind of, fallen into balance again and that takes pressure out of the system.”

Rio’s $US11.8 billion underlying full-year profit was better than the $US11.64 billion expected by analysts surveyed by VUMA. Those analysts had expected Rio to report total dividends for the year of $US4.23 per share. Rio beat the dividend expectations, with full-year dividends for the last year totalling $US4.35 per share.

Payout ratio 60pc
Rio’s dividend equated to a payout ratio of 60 per cent; the same as last year but below the huge 79 per cent payout ratio the previous year.

Benchmark ore with 62 per cent iron was fetching $US120.85 a tonne on February 20.

BHP said it expects that iron ore prices are unlikely to fall below $US80 a tonne for an extended period given there is not much new supply entering the market in the immediate future.

That could all change after 2025 when Rio and its partners plan to start exporting African ore from Guinea’s Simandou project. Final approvals for Simandou continue to be elusive, but Mr Stausholm said the project remained on track, and he had not seen any red flag delays since last updating investors in December.

Fortescue has also started exporting African ore from Gabon and is expected to update the market on its plans for Africa on Thursday.

Release of Rio’s profit on Wednesday afternoon came with the news that its senior Australian director, Simon McKeon, would step down from the board in May.

Earlier on Wednesday, Rio announced an agreement to buy 80 per cent of the power generated from a new 1400-megawatt wind farm at Bungaban in Queensland for 25 years. The agreement, which will lead to clean energy produced from 2029 onward, is part of efforts to find a low carbon power source for the alumina refineries and aluminium smelters that Rio owns near Gladstone.

It is the second major renewable power purchase agreement Rio has struck within a month, after agreeing to buy all the power to be generated in future at the Upper Caliope solar farm near Gladstone. The deals will make Rio the biggest industrial buyer of renewables in Australia.