Fairfax: Rio chief tight-lipped on Ranger mine

by Peter Ker

read on Age website

Rio Tinto chief executive Sam Walsh has refused to guarantee that his company will cover the cost of rehabilitating the Ranger uranium mine near Kakadu, building on uncertainty that was created last month by the Rio subsidiary in charge of the mine.

Energy Resources of Australia - which is 68 per cent owned by Rio - raised eyebrows when it revealed it may need to find new sources of money to meet its rehabilitation commitments for Ranger, which is entirely surrounded by Kakadu National Park.

Under the Ranger permit, ERA must have rehabilitated the site by 2026, and a review of the rehabilitation strategy in 2013 found the cost would be $603 million on a net present cost basis.

ERA has $357 million on hand and has ceased mining at Ranger, with the company now exploring for more uranium underground in a bid to find future revenue streams.

In an unusual move, ERA appeared to link the success of that exploration project - known as Ranger 3 Deeps - to its ability to pay for the rehabilitation of the site.

"If the Ranger 3 Deeps mine is not developed, in the absence of any other successful development, ERA may require an additional source of funding to fully fund the rehabilitation of the Ranger Project Area,'' the company said in its annual report.

Such an outcome would be unusual, as miners are typically compelled to pay for the rehabilitation at the end of a mine's life through provisions that are made each year.

In ERA's case, some rehabilitation is already underway and it maintains a trust with the Australian Government which was holding $63.9 million at December 31.

When asked at Tuesday night's annual meeting of Rio shareholders in London, Mr Walsh indicated he was in no mood to pick up the tab for ERA, particularly after Rio took part in a $500 million equity raising for the company in 2011.

"There was a rights issue at ERA to fund the rehabilitation work and those funds are still sitting within that business," said Mr Walsh.

''(ERA) is a public Australian company and clearly that is an issue for them.

"We are clearly shareholders, but it's a matter for all shareholders and a matter for the ERA board."

Environmental sensitivities of another kind were also raised at the AGM, with Rio executives forced to defend the company's continued involvement in coal mining.

Mr Walsh said Rio did accept that "man made emissions" were responsible for changes in the climate, but the company believed the challenge could be resolved through technological developments rather than by ceasing coal production.

"Coal will be around for quite a while, it is a low cost energy solution and so long as there is demand for coal then it will be part of our portfolio," he said.

Rio chairman Jan du Plessis agreed, but noted that; "In the very long term ... I have no doubt and I really hope the world will be able to develop friendlier ways of generating energy and the world will be able to rely less and less on thermal coal."

Mr Walsh was made chief executive 15 months ago after the Rio board lost patience with the failed investment decisions made by his predecessor Tom Albanese.

The company wore close to $US13 billion worth of write-downs on miss-timed and poorly judged acquisitions, and Mr Walsh used Tuesday's meeting to highlight the changes he has made in the area of investment decisions.

Mr Walsh said an extra layer of review was now taking place on all major spending decisions.

''We've added a pre-review process before projects and major transactions come to the investment committee,'' he said.

"This is important because you have subject matter experts within the business and we need to be able to question them to understand in detail what they are proposing."

In a rare discussion about Rio's specific business divisions, Mr Walsh said Rio had faith that the aluminium market would one day emerge from its current state of over-supply.

"Aluminium will improve over time, but for the moment we are stuck with low prices,'' he said.

Rio bought $US38 billion worth of aluminium assets shortly before the global financial crisis, and has since been forced to write-down close to $US30 billion of that value as aluminium prices plummeted.

Mr Walsh said demand for aluminium was rising, but there was simply too much production in the market at the current time.

Rio's Australian AGM will take place on May 8.