By David Winning
SYDNEY -- Rio Tinto PLC said its chief executive would step down as it battles to contain the fallout from the destruction of two ancient rock shelters in Australia's minerals-rich Pilbara region that were culturally significant to a local indigenous group.
Rio Tinto said Jean-Sébastien Jacques would leave the company no later than March 31 after more than four years as CEO, bowing to pressure from investors for its senior leaders to be held accountable for the destruction of the caves at Juukan Gorge on May 24.
Rio Tinto, the world's second-largest listed mining company by market value, said a search for a new CEO was under way and Mr. Jacques would leave sooner than March 31 if a successor is found. Two other executives, including Chris Salisbury, the head of its iron-ore division, will also leave the company at the end of this year.
Rio Tinto's troubles show how environmental and cultural issues have taken center stage in an industry that is fighting to change investors' perceptions that mining is problematic. Many mining operations are on land traditionally owned by indigenous groups, including in South America, Africa and the Arctic Circle. Their activities can be a source of friction if residents don't feel they benefit from the mining activity nearby.
Rio Tinto has apologized for blowing up the caves during work to expand its iron-ore operations, and last month cut bonuses for Mr. Jacques, Mr. Salisbury and head of corporate relations Simone Niven for governance failures outlined in an internal review that aimed to ensure similar missteps cannot happen again.
In a review of the event released Aug. 24, Rio Tinto found that no single individual or error was responsible for the destruction of the rock shelters. In documents submitted to a federal parliamentary inquiry in Australia last week, the company said no senior leader of its iron-ore unit or group executive was aware of the high significance of the Juukan rock shelters before May 18.
The indigenous group that is the traditional owner of land around the Juukan Gorge site said archaeological research there revealed several ancient artifacts, including a bone fragment sharpened into a pointed tool, grinding and pounding stones, and plaited human hair that appeared to have come from an ancient hair belt.
Many investors were unhappy with the conclusions of Rio Tinto's review, and Australian lawmakers have criticized the company's decision-making. One document Rio Tinto submitted to the parliamentary inquiry showed the company had instructed a law firm to prepare for a possible injunction brought by the indigenous group, the Puutu Kunti Kurrama and Pinikura people, or PKKP, at least three days before the blast.
"We have listened to our stakeholders' concerns that a lack of individual accountability undermines the Group's ability to rebuild that trust and to move forward to implement the changes identified in the Board Review," Chairman Simon Thompson said on Friday.
It isn't known whether Mr. Jacques' departure will satisfy investors. On Thursday, HESTA, an Australian pension fund for health-care workers, said it had lost confidence in Rio Tinto's ability to reset relations with traditional owners on its own.
"Accountability for the destruction at Juukan Gorge should rest at the highest levels of Rio, but a larger, systemic issue of how the company and the mining sector negotiates agreements with Traditional Owners needs to be urgently addressed," said HESTA, which owns Rio Tinto shares worth around US$182 million.
Mr. Jacques became CEO of Rio Tinto in mid-2016 as the global mining industry was emerging from a prolonged downturn in metal markets. Formerly Rio Tinto's copper chief, Mr. Jacques sold all of the company's coal pits and avoided major acquisitions that had weighed on the miner's stock price in the past.
However, his tenure also coincided with Rio Tinto becoming the subject of several regulatory investigations around the world.
In 2018, the Australian Securities and Investments Commission alleged that Rio Tinto and former executives "engaged in misleading or deceptive conduct," misrepresenting the reserves and resources of its Mozambique coal assets. A year earlier, Britain's Serious Fraud Office said it had opened an investigation into suspected corruption by London-listed Rio Tinto in the Republic of Guinea.
Rio Tinto is defending the allegations, and describes the regulatory proceedings as unwarranted.
Mr. Jacques has also faced operational setbacks, including in Mongolia, where an expansion of its flagship Oyu Tolgoi copper mine underground has been delayed by more than two years to mid-2023 and could cost $1.9 billion more than originally estimated.
Still, a rally in iron-ore prices has kept profits high. Rio Tinto recently reported $4.75 billion in underlying earnings for the six months through June, enabling directors to increase the midyear dividend payout to shareholders. Its Australian shares have risen more than a quarter in value from lows in March, when the coronavirus pandemic intensified.
Rio Tinto didn't break any laws when laying explosives at Juukan Gorge. It was authorized by the Western Australia state government to conduct activity at its Brockman 4 mine that would affect the rock shelters.
Rio Tinto has been working closely with the PKKP in regard to the Juukan area since 2003, and formally reached an agreement for use of the land in 2011.
The PKKP said it was first advised of Rio Tinto's intention to blast the gorge near the rock shelters on May 15, and that explosives had been laid. Attempts to negotiate with Rio Tinto to stop the blast foundered when independent experts advised it wasn't safe to remove the charges, the indigenous group said.
Pressure on Rio Tinto's board intensified after they decided to impose financial penalties on executives last month. AustralianSuper, which manages more than $130 billion in retirement savings, said it had met with Rio Tinto's chairman and told him those penalties fell "significantly short of appropriate responsibility for those responsible."
The Australian Council of Superannuation Investors, which represents local pension funds, also raised concerns with Rio Tinto board members, including the issue of accountability.
"The destruction of the caves resulted in a devastating cultural loss," ACSI CEO Louise Davidson said following Rio Tinto's review. "In addition, it is of significant concern to investors because it puts at risk Rio Tinto's relationship with key stakeholders and its social license to operate."
The destruction of the caves at Juukan Gorge could have ramifications for other miners operating in the Pilbara, including BHP Group Ltd. and Fortescue Metals Group Ltd., two of the world's four largest iron-ore producers. Lawmakers in Western Australia this year said they intend to introduce new legislation that resets the relationship between indigenous groups and land users, including miners.
About 60% of the world's iron ore traded by sea comes from the Pilbara, including from Rio Tinto's operations, and the region is a major source of the commodity for China and other fast-growing economies.
Write to David Winning at email@example.com