【澳大利亚人报】Protecting nation's future not-negotiable

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Protecting nation's future not-negotiable
http://www.theaustralian.news.com.au/business/story/0,28124,25469010-5018066,00.html

Gina Rinehart May 13, 2009

AUSTRALIA has a very important issue before it -- the proposed Rio Tinto-Chinalco deal.

An issue that depending on how it is handled now will not just be important to this generation, but to our children's generation as well.

Given the mass of media speculation surrounding this very serious situation under headings such as "Foreign money built this country" (The Australian, May 5) and "Beijing cash critical to economic growth" (The Australian, May 2), and "Rio Tinto says Chinese investment will be critical in Australia's economic development" etc, we would be excused for rushing to think that allowing the Chinalco-Rio deal without investment conditions would be economically beneficial for Australia.

Without investment conditions for such approval, Rio London, or Rio elsewhere, can simply follow what Tim Treadgold pointed out in his article of April 18, (in The West Australian) "the obligation of international companies (is) to seek out the best destination for their investments, and the legal duty of directors (is) to maximise profits for the owners of the company."

This does not mean and nor should it be assumed to mean that it is the obligation of Rio or the obligation of Rio's directors, or even the obligation of Rio's minority Australian directors, to fondly recall that Australia is where the majority of their revenue success was derived, and that assuming we allow the Chinalco deal without investment conditions, Rio will then invest in Australia.

Take for instance the recent article in the overseas publication, The Asia Miner April-June 2009, under the heading "Indian potential for Rio Tinto" (extracts follow):

"India promises great potential for Rio with the country's strong economic growth set to continue for many years. As India continues to industrialise, the demand growth for most metals and minerals will accelerate, and this will benefit Rio Tinto and other mining companies."

Rio Tinto India's managing director Nick Senepati discussed the company's involvement in India during a presentation at the 9th International Mining and Machinery Exhibition.

Senepati says there are attractive exploration and production opportunities in India which will see Rio Tinto in a good position in the future.

The government is also expected to pass a new, more favourable mineral law which will provide the Indian mining industry with a boost.

Even Rio Tinto's most recent annual report released in March states that Rio "expects to commence mining in 2009 (in Orissa, India)."

Add to all this, in the Sydney Morning Herald of April 27, it was reported that "Rio has said it plans to mine more than 70million tonnes of iron ore a year in Simandou (Guinea, Africa) and possibly as much as 170million which would make it one of the largest iron ore mines in the world."

This article also states that "Mr Walsh acknowledged recent erratic behaviour by Captain Camara (of Guinea) towards global mining companies, but said the new military leader provided some cause for optimism because he was 'pro-development and clearly working actively to remove corruption and bribery'."

The article mentioned that "African countries wanted to work with the Chinese Government because of its long history of support, including scholarships for thousands of African students who are now rising to senior posts, and because of its unrivalled record in building fast and cheap quality infrastructure."

"It's an example of how Chinalco could enhance the position of Rio Tinto. This sort of thing is happening wherever you go in Africa."

We cannot wish or assume that Rio-Chinalco (without investment conditions) will then invest in high-cost Australia.
What do India or Africa offer Rio and other mining companies? Massive and high-quality ore reserves and labour costs massively cheaper than in Australia.

What happens when Rio, perhaps enlivened with Chinese assistance, develops these massive projects in Africa and/or India?

Those projects offshore will compete against Australian mines and interests for many decades to come.

How will this help us to create more jobs? How will this help us to repay our growing debt? How will this help us maintain or grow standards of living?

We love to think of ourselves as a "lucky country", protected from the tsunamis of the worldwide financial and economic crises thanks to the enduring strength of our mining and export industries.

But what will happen in the future, when those competing major mines in low-cost countries compete against us, reducing our mining and export industries, and if Australia has not protected itself with investment conditions, and if future economic and financial tsunamis hit us?

Of course, Australia must also look internally and do what we can to address our rising costs and make ourselves more attractive for investment, so that the Rios and others of this world wish to invest in Australia.

But this requires a significant amount of political will and fortitude and an ability to look beyond the immediate.
We should streamline our environmental and other approval expenses and processes.

We especially need to drastically reduce construction expenses in Australia for mines and infrastructure in remote areas.

Significant corporate support has been achieved to support our requests to Canberra that, providing a percentage of work is reserved for indigenous people, we allow guest labour to work in remote areas only during construction of projects and infrastructure, so that we can achieve cost-competitiveness in the world markets.

Once these projects are in Australia, the opportunity is here to support Australian workforces for decades.

But they can't if our construction costs are too high and projects go offshore instead.

This could happen and we need to recognise it.

We need to recognise that construction jobs for these important projects are only short-term, (around a year or two) but if we are prepared to forgo the short-term (except in the instance of the indigenous jobs plus any others who are willing to work on world-labour terms and conditions) we would enable Australians to have jobs for the long-term, providing these projects are achieved in Australia in the first place.

We could also look at the precedent that the South African president set in 2003-04.

Then, Anglo wanted to get more equity in South Africa's largest mining house, Kumba.

The president of South Africa entered into an agreement with the then-CEO of Anglo, allowing Anglo to purchase more equity in Kumba on the proviso that Anglo prioritised Kumba's investment in mining and infrastructure in South Africa.

Australia, particularly with our growing debt, needs to achieve something no less than this.

We cannot afford to be sidetracked with more "Australianisation" of Rio -- whatever that means.

A few more Rio executives here or a few more Australians on the Rio board but still as minority directors? This offers Australia far, far too little.

When Rio, or any other multinational, operates in Australia (or other countries), they must abide by Australian (or other countries') regulations and conditions, e.g. environmental and indigenous regulations and conditions, even though this does not assist "the legal duty of directors to maximise profits for the owners of the company", they still must comply to operate here, or elsewhere.

We, in turn, need to provide conditions that Rio will pursue their development in a way that does not diminish economic return to Australia, but would be beneficial to Australia's growth.

This cannot be done via generalised assumptions that Chinalco investing in Rio somehow means more capital investment in West Australia or Australia, unless conditions to so invest are provided and upheld. This will require some negotiation.

The Chinese have already indicated publicly their willingness to work with Australia to achieve satisfactory approvals for their greater share of Rio and various other arrangements with Rio.

The Chinese have also indicated publicly that they do not wish to control Rio.

It should not then be impossible to insist upon removing Chinese representation from the remuneration and bonus committees of Rio.

The National Interest test should not be framed on the immediate but projected decades down the line.

We should not be at all satisfied that only one state, South Australia, made it into the independent North American Fraser Report as being in the top 20 places for investment in the exploration-mining industry.

Why should Australia place conditions on how Rio moves forward with capital investments?

1. It is within the powers of the Treasurer under the existing legislation to provide guidance in a way that protects our national interests.

2. The Chinalco-Rio deal is more than just one company making a passive investment in another -- as the deal currently stands, Chinalco will be represented not only on the board but throughout the decision-making processes of Rio through representation on new committees such as the Iron Ore Strategic Alliance Committee (which approves budgets and capital-investment proposals) and representation rights in relation to the performance, remuneration and bonuses of key Rio executives.

Therefore Australia must also exert its influence by providing a framework for this special combination to move forward in a manner that protects our future interests.

3. Particularly, but not only in iron ore, Rio has developed a significant body of intellectual capital through its Australian mining operations -- this, as well as the additional capital available from the Chinese government, is likely to establish competing mining industries in lower-cost countries, such as in Africa and India, that once in operation will compete against Australia's projects and interests for the very long term.

We need to take steps to protect our biggest export earners on which Australia depends.

4. It is at this time the Australian Government must attempt to forecast the effects such a tie-up will have over not just the immediate term, such as claims that it could save 1500 immediate jobs, but also consider the long-term ramifications of having the Chinese Government as a significant shareholder/financial backer in regards to effects it could have on the Australian mining industry and hence the economy of Australia, and the need to keep the Australian economy strong in future. Hence we need to arrange undertakings for investment.

5. It is in the interests of all Australians (not segmented groups) that we protect our future economy and economic health, taxpayers, those seeking work, those benefiting from taxes paid in Australia be it through better hospitals, more resourced internal and external defence, pensions, and our next generations.

We would not be the only country that considers the interests and future interests of its people. Even blind Freddy can see that my speaking out as a concerned Australian wanting to see Australia's interests put first will not win friends for me with some Rio executives or in other important quarters.

The South African Government entered into an agreement to endeavour to protect its national interest in the case of South Africa's major resource company, Kumba. Should we expect any less from our Government?

Gina Rinehart is chairman of Hancock Prospecting. Hancock is a joint-venture partner with Rio in various iron ore projects. Hancock Prospecting also owns shares in Rio Tinto.

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