2008 Rio Tinto AGM transcript

September 10, 2009

Stephen Mayne: Morning chairman, Stephen Mayne, I'm a small shareholder and a proxy holder for four other shareholders.

Just an opening request: I've actually flown on the overnight flight from Perth to be here, partly because you don't web cast your AGMs. One of your security people has confiscated my recording device. This is going to be quite an important meeting, possibly the last ever Rio Tinto AGM, and I'd just like you to make an undertaking that there will be some sort of public record of today's discussion. I don't mind whether it's a form of a transcript, or an audio recorded on your website, which is common practice: the majority of Australian companies actually web cast their AGMs. So, can I have that undertaking from you at the start of the meeting that full proper public disclosure of today's proceedings will be available for shareholders and the broader public?

Paul Skinner: I have no difficulty at all saying we'll meet any legitimate and reasonable request for the proceedings of this meeting.

Stephen Mayne: All right. Because I've previously asked for transcripts of past AGMs, and I've been refused, so that's been a little disappointing, now that…

Paul Skinner: [Interrupts] Well, we're not a secretive organisation, so let's do our best…

Stephen Mayne: Okay.

Paul Skinner: …to meet the spirit of your question.

Stephen Mayne: All right. Now, my first issue, you've mentioned in your formal address about the level of investment in Australia, and a few points like that. I'm not sure that there's another company in the world that is headquartered elsewhere, that has such a huge investment in a country. I mean, Rio Tinto has more than a $100 billion of assets in Australia, you have no operations or assets to speak of in the UK, and I just remain baffled as to why you're not actually headquartered in Australia.

Paul Skinner: Well, the re… we are where we are, because of our history, and the way the company's evolved. But I think what really matters when you start to get into that sort of territory, is what is the result of what we do.

And I think in my remarks, I did observe that over the last 10 years, we've invested about $30 billion in Australia; we've created a lot of value, a lot of national wealth, a lot of employment, a lot of outstandingly good jobs.

And I don't think the fact that we're a company of mixed parentage, if you like, with some of our operations in other parts of the world, is in any way dilutive to our commitment to Australia. We're here very often, as leaders of the company. We have close and productive relationships with state and federal governments, and communities throughout Australia. The entire board spent the early part of this week in the northern part of Queensland, looking at operations in Gladstone, in Weipa, in Gove.

We carry the spirit of Australia with us in this company, so, there are, as it were, accidents of history and geography which have probably defined the company as it's presently configured. But I think we're as Australian as anybody in the corporate scene in this country.

Stephen Mayne: Chairman, I think that Australian shareholders only…

Paul Skinner: [Interrupts] Well, I'm just anxious that we - while I'm very happy to take further questions from you that this meeting shouldn't just be, as it were, a public conversation between you and I. I'd like to see if there's anybody else who'd like to ask any questions. But I will come back to you.

Stephen Mayne: Chairman, I've got a question about - a broader question about China. I notice we've got the big Chinese neon lights on the cover of the Annual Report this year. Can you tell us have we had any discussions with Chinalco since that bought that nine per cent stake through the plc shares.

I'd also like an update on what the situation is with the spot price embargo where reports are that the Chinese are refusing to take our shipments that are on the spot price and accusing us of ripping them off and breaking contracts and things like that. Can
you give us an update on where that standoff is currently at?

I was also curious to read in the Financial Review that, I think, Tom Albanese, our CEO, was at the Chinese leadership dialogue and had prepared a written text of a speech to be delivered to the Chinese leadership, which was really going to give it to them; where Tom was going to tell them in that sort of brash American way how they should run down their foreign reserves and manage the currency more effectively, and these sorts of things.

And then he actually decided when in the room not to deliver that speech, and actually delivered a speech that was somewhat more delicate and diplomatic.

Can we actually hear what happened there, because I was a bit disturbed to read in the press that we seem to be going in boots and all with the Chinese when we clearly need to be showing a lot of finesse in the way we manage this vital relationship?

And…

Paul Skinner: Well, I think…

Stephen Mayne: This is the final point, final point, chairman. On this question about our relationship with China, I think it does come back to this where the domicile is. Kevin Rudd, the new Prime Minister of Australia, does seem to have a special relationship with China; speaks Mandarin, the only world leader who does.

Tom met with Kevin Rudd in London recently to discuss iron ore and various things like that. And don't you think that it would perhaps be in our interests to be an Australian domiciled country when we have this special relationship through our Mandarin speaking Prime Minister, to help us in our negotiations in China rather than a British company with a brash American CEO going in boots and all?

[Laughter]

Paul Skinner: Right.

[Laughter]

I don't know whether to take my jacket off or not for this bit.

[Laughter]

But you make a number of points and we're going to give you a clear answer to all of them, which I will do with some help. And Tom can certainly give you his own personal blog on the China Development Forum which took place in Beijing which he attended, and I think that's the meeting to which you refer.

Well, I'm sorry you didn't like the Annual Report. I thought it was quite an exciting cover, and it somehow projected a vitality in the extent to which Asia is very much sort of part of our business. So I'm sorry you can't give us a better mark for artistic impression, but we'll keep trying on that.
As far as Chinalco are concerned we, as I think is clear, did not solicit their shareholding in Rio Tinto plc. They did actually come to see us the day after the discussion - sorry, the day after they took the investment. And that was a very cordial and friendly discussion, during which they explained very clearly what their objectives were; seeing Rio Tinto as a long-term strategic investment in a very high quality, very well managed company.

There was no pressure whatsoever from their side for participation in our management, seats on our board, or anything of that nature, since which there have been no discussions with them. And we look forward to seeing how that develops, but factually that's the position.

I'm going to ask Sam if he will address the question of spot priced cargoes of iron ore, inasmuch as you are able to respond to that, recognising that this is a very important negotiation process, not only for the company but also because of its significance for
Australia.

A few words on that, Sam, inasmuch as you're able.

Sam Walsh: Thank you very much, chairman. Obviously iron ore negotiations are a very complex and involved and a lengthy process.

These negotiations are particularly important due to the fact that we believe the settlement by Vale, the Brazilian company previously known as CVRD, didn't in fact reflect the strength of the market, and from our viewpoint certainly did not reflect the significant advantage that we give the Chinese customers in terms of the freight content associated with the delivery of our ore.

Our ore is the cheapest or lowest cost ore delivered into China and we believe that our current price is not reflecting that, hence our request for a price increase that reflects the higher band of the Vale increase and then recognition of the freight differential on top of that.

In relation to our spot contracts and the comment that Mr Mayne made in relation to our breaking contracts, we have not broken any contract. In fact, we have religiously maintained the terms of our agreements.

Over time, both parties have taken advantage of the terms of contracts with various options to either increase or decrease the amount associated with the contracts. In this particular case, with some of our customers in China, we have exercised minus options.

That, plus additional volume that we've produced has allowed us to announce back in December that we plan to ship up to 15 million tonnes of spot during this year. And in fact in terms of that announcement that I made, we are tracking in fact with our spot shipments.

There has been a lot of speculation and comments in the media, both about the negotiations and in fact in relation to the spot shipments. Some of that is accurate, some of it - or a lot of it is in fact inaccurate and doesn't in fact reflect the true situation in relation to the market.

But please be assured, in terms of your comments about the need for sensitivity in relation to negotiation with our customers, that we do in fact take a very sensitive and thoughtful approach to the negotiations.

What we are seeing is part of the normal argy-bargy of the arm wrestling that goes on in relation to negotiations, and I expect that in due
course that we'll reach a settlement that in fact will be satisfactory to both parties.

Paul Skinner: Thank you Sam. Perhaps I'll just touch the end part of your question on domicile, then I'll hand it over to Tom to talk about the meeting in Beijing.

I don't think actually the fact that ours as an Anglo Australian company in any way impairs our commercial relationship with a very broad base of Chinese customers. I think there's recognition that iron ore, which Sam's been talking about, is essentially coming primarily from Australia. We have Chinese investors already in one or two of our mining operations in a minority.

We remain always in close dialogue and consultation with the Australian Government about matters of important commercial interest. Tom and I were fortunate to have a very good conversation with your prime minister during his recent visit to London, and both of us meet regularly with ministers of the Federal and State Governments. And I think that there is a perfect understanding and alignment between all parties as to the course we are following at any point in time.

I think myself it is actually remarkable that Australia now has a prime minister who is a fluent Mandarin speaker. That's not always been the case in the past, and he's setting a pretty high bar for anybody who follows him, in that sense.

But I don't think you should worry about nationality issues when it comes to securing Australia's economic interest from products in which Rio Tinto is involved.

The Beijing meeting.

Tom Albanese: Thank you. Yes, maybe if I could just provide a little bit of a backdrop. Once a year; this is the ninth year running…

Paul Skinner: Well, a short backdrop.

Tom Albanese: A short backdrop.

[Laughter]

The China Development Forum meets as a group of international companies of all types around the world. Rio Tinto was one of the founding companies, [indistinct] only a few that have been involved.

Nine years ago, before China was so fashionable, we began to take a serious look and develop these types of relationships on engaging economic dialogue, understanding growth patterns with policymakers within China. And, again, the fact that we've been involved with that for nine years shows that this is something that has been very much a part of our strategic thinking and our predecessors' strategic thinking.

As usual with a forum like this, they're interactive. Questions come through during the course of a couple of days, and we're always asked to provide some written script upfront.

During the course of the three days, I was really encouraged by some of the questions I was getting. I mean, one question, for example, [indistinct], you know, with all of this growth we expect in China, do you see enough copper in the world, period, to meet this?

Now, as a miner, we like to hear that kind of question because that really shows, you know, what we can supply that there is a demand for. So I certainly saw the value in scripting that type of question and presenting a reply to that type of question in my comments, which is what I did. And, again, I think it's important to recognise that the key message I wanted to get when I was in China with this China Development Forum, was the fact that Chinese companies will be investing overseas one way or the other; with Rio Tinto or not.

And that we can create competitive advantage for Rio Tinto shareholders by creating a joint venture type structure which can bring in say, senior SOEs - state owned enterprise - within China, but under Rio Tinto conditions around sustainable development, environmental principles, worker safety. And this can create a win-win situation that I think is good for Rio Tinto, and certainly good for Rio Tinto shareholders.

Paul Skinner: Thank you, Tom.

Stephen Mayne: Just a brief supplementary on the last one: do any of the undertakings given to the Canadian Government and the Quebec Government go to board representation of the company which owns and operates the assets?

Paul Skinner: I'd have to double check on that, but I do not believe that's the case, Steve.

Tom Albanese: No.

Paul Skinner: No; thank you.

Stephen Mayne: With the very greatest of respect to Paul - and I'd like to preface these remarks by saying I actually hold a British passport, my father's British, my grandfather died last year at 107 and was the last surviving officer from the British Army in World War One. And I actually barrack for the English in the cricket.

But I think we actually have a problem here, which is the domination of our board by the old British school tie, with our three knights, our chairman of Cazenove, our lord, and our chairman. And I think that, objectively, looking at it from a shareholder point of view, it is very clearly in the interests of the shareholders that this company actually be based in Australia.

And I make a couple of points about this. The first is that the world changed last November when the Howard Government was voted out. We made a series of undertakings to the previous Labor Government when CRA/RTZ was created in 1996, which we subsequently broke and which very much upset the Labor Party.

I think if you look at resource nationalism around the world, you see it with…

Richard Sykes: [Interrupts] Wait a minute, what has this got to do with the re-election of Paul Skinner…

Stephen Mayne: I - I'm - I'm…

Richard Sykes: …because this is a domicile…

Stephen Mayne: …I'm speaking against the re-election…

Richard Sykes: …issue again…

Stephen Mayne: …no, no - it's…

Richard Sykes: …which has nothing to do with the re-election of Paul Skinner.

Stephen Mayne: I - I'm explaining why I will be voting against the chairman, and I'm putting the case as to why; it'll take about one more minute, I can beg…

Richard Sykes: One more minute, okay.

Stephen Mayne: Now, when you look at issues like access to resources, like shu… the debate over Shovelanna, like the major government policy decisions over open access to our rail mines, even sensitive issues like getting back into Bougainville. I mean, the previous government had terrible relations with - in the Asian Pacific. Lord Downer, you know, was just very, very stand-offish. The Labor Government has much better connections and I just think, frankly, that the world has changed and that this board hasn't realised.

Did you see last weekend's 2020 Summit, where the overwhelming message from all those Labor luvvies who were gathered, was that they want a republic. I mean, that actually goes to the core of how they will deal with this company by the fact that it's a British-based company, when it should be an Australian-based company. And my point is you will - we will get a better run from the Australian Government, and it will create substantial value for this company, dealings in China, dealings across the region, if we were headquartered here, if we were owned more than 15 per cent by Australian shareholders and if we had more than two…

Richard Sykes: Okay…

Stephen Mayne: …out of 15 Australian-based directors. So, Chairman, I think you're…

Richard Sykes: Thank you very much…

Stephen Mayne: …the blocking point here, and I'll be voting against your election today. And I want you to heed the message that I think you need to get ahead of the curve as to what will create shareholder value for us shareholders in the future.

Richard Sykes: Okay. Well, I'm very sorry to hear that you're going to vote against Paul's election because I think he does an extremely good job for this company and it would be not as good a company without him, let me put it that way. So I'm sorry about that.

[Applause]

Are there any other questions? Okay, thank you.

very much. Over to you, Chairman.

Paul Skinner: Thank you. Well, you can't please all the people all of the time; that's proven once again. But if I can, sort of, depersonalise this and readdress briefly the question of domicile and relations. It's very interesting, as a company like Rio Tinto, again, wherever we are in the world, it is in our interest to maintain positive and constructive relationships with governments and authorities, and that we've always sought to do.

And I have to say that in the period since the change in government in Australia at the end of last year, our dealings with your prime minister, with ministers in his government, with the governments of the states of Australia - we had dinner yesterday evening with the Premier of Queensland and most of her ministers - suggest to me that we are actually thoroughly welcome in our current state.

And I really think that some of the direction of your comments is really not in accordance with the practical realities of our life. Thank you.

[Applause]

I'll wear the right tie next time.

Search:

2008 Rio Tinto AGM transcript

September 10, 2009