Morningstar - Q4 2020 - 26

Dispatches

Rio Tinto Disaster
Offers ESG Lessons
AUSTRALIA + NEW ZEALAND

Australia
Mining company Rio Tinto RIO:AU destroyed a
46,000-year-old sacred Aboriginal site in Western
Australia's Juukan Gorge in May in order to mine
iron ore worth around $135 million. The company
demolished rock shelters that held archaeological
evidence of human habitation for millennia.
The destruction was irreversible, but legal.
Rio Tinto had obtained permission to mine in the
area in 2013. Morningstar subsidiary Sustainalytics
points out that Rio Tinto was advised of the
high significance of the site in 2014 and 2018. In
August, the company revealed that it had
other options but chose to destroy the site without
presenting the alternatives to the traditional
owners of the caves, the Puutu Kunti Kurrama
and Pinikura people.
In response to public outcry, Rio Tinto's chief
executive officer Jean-S├ębastien Jacques will step
down when a replacement is found, or on March
31. Chris Salisbury, the iron-ore division head,
and Simone Niven, the corporate relations head,
will also depart. The three will not receive a
performance-related bonus for 2020, and Jacques'
2016 long-term incentive plan award will be
reduced by GBP 1 million.
Chairman Simon Thompson said in a statement:
"What happened at Juukan was wrong, and we are
determined to ensure that the destruction of
a heritage site of such exceptional archaeological
and cultural significance never occurs again
at a Rio Tinto operation." But the erosion of trust
may cost the company in the long run.
"Rio Tinto was widely known for its public
commitments on responsible mining,
and specifically Aboriginal land rights, and for
holding itself to high standards of conduct,
over and above minimum legal requirements," says
Alberto Serna Martin, Sustainalytics' associate
director of ESG Research.

26

Morningstar Q4 2020

Download MorningstarAR from the App Store or Google
Play, and navigate to "Morningstar Magazine."

SCA N T R IGGE R
LAU NCH COMPANI ON V I DE O

TRENDS

Rio Tinto Shares
Remain Overvalued
Rio Tinto's destruction of the Juukan Gorge
caves in the Pilbara brings the importance of
social responsibilities into sharp focus
for miners. The resignations of Rio Tinto's
CEO Jean-S├ębastien Jacques and two
other key executives are an important step
in repairing community trust.
At this stage, we see no reason to alter our
forecasts for iron ore production. We retain our
AUD 69 per share fair value estimate. The
shares remain overvalued, reflecting the high iron
ore price, which we don't expect to persist.
There is risk of modest near- to medium-term
supply disruption as Rio Tinto incorporates the
lessons from this mistake and improves
management practices, but we don't expect
a material reduction.

it takes to avoid a recurrence of the Juukan
Gorge mistake. The key considerations for our
stewardship rating are balance sheet,
investments, and shareholder distributions. Of
the three, investment is likely most important
for Rio Tinto's future shareholder returns.
We think it will be difficult for the company
to consistently make value-adding investments
and avoid mistakes, hence the Standard
rather than Exemplary rating. We think the
balance sheet will remain sound and shareholder
distributions will be appropriate.
Mathew Hodge is director of equity research with
Morningstar Australia.

We retain our Standard stewardship rating.
We think new management will do what

"This incident shows a significant gap between Rio
Tinto's stated commitments and their consistent
application in practice, which is difficult to
reconcile. As a result of this incident, Rio Tinto has
suffered considerable damage to its reputation,
trust, and social license to operate."
Martin notes that Rio Tinto has many other
projects ongoing in Australia and in Africa and
Canada, and it needs community and stakeholder
approval for these projects. "Now, negotiations
will be tougher and will take longer. This will end
up costing more," he says.
Morningstar's director of sustainability
stewardship research, Jackie Cook, found the
destruction inexplicable: "It's hard to believe that
the company thought it could get away with
this without public outcry and shareholder revolt."

Cook says that this issue is likely to be on the
corporate ballot at the next annual shareholder
meeting in the form of a human-rights shareholder
resolution and perhaps votes against board
members and pay practices. But Cook says that
shareholder activism isn't enough. Strong
senior leadership, including board leadership, is
key to navigating ESG risks.
Sustainalytics notes that there have been tensions
with communities around the Richards Bay
mine in South Africa, as well as ongoing lawsuits
against Rio Tinto's subsidiaries in Canada by
First Nations groups. Residents have protested a
bauxite mine in Guinea, and communities around
the Escondida mine in Chile (which Rio Tinto
jointly owns with BHP BHP:AU) have complained
about the project's impacts. Apache groups in the
United States have opposed the Resolution Copper



Morningstar - Q4 2020

Table of Contents for the Digital Edition of Morningstar - Q4 2020

Contents
Morningstar - Q4 2020 - CT1
Morningstar - Q4 2020 - CT2
Morningstar - Q4 2020 - Cover1
Morningstar - Q4 2020 - Cover2
Morningstar - Q4 2020 - 1
Morningstar - Q4 2020 - 2
Morningstar - Q4 2020 - Contents
Morningstar - Q4 2020 - 4
Morningstar - Q4 2020 - 5
Morningstar - Q4 2020 - 6
Morningstar - Q4 2020 - 7
Morningstar - Q4 2020 - 8
Morningstar - Q4 2020 - 9
Morningstar - Q4 2020 - 10
Morningstar - Q4 2020 - 11
Morningstar - Q4 2020 - 12
Morningstar - Q4 2020 - 13
Morningstar - Q4 2020 - 14
Morningstar - Q4 2020 - 15
Morningstar - Q4 2020 - 16
Morningstar - Q4 2020 - 17
Morningstar - Q4 2020 - 18
Morningstar - Q4 2020 - 19
Morningstar - Q4 2020 - 20
Morningstar - Q4 2020 - 21
Morningstar - Q4 2020 - 22
Morningstar - Q4 2020 - 23
Morningstar - Q4 2020 - 24
Morningstar - Q4 2020 - 25
Morningstar - Q4 2020 - 26
Morningstar - Q4 2020 - 27
Morningstar - Q4 2020 - 28
Morningstar - Q4 2020 - 29
Morningstar - Q4 2020 - 30
Morningstar - Q4 2020 - 31
Morningstar - Q4 2020 - 32
Morningstar - Q4 2020 - 33
Morningstar - Q4 2020 - 34
Morningstar - Q4 2020 - 35
Morningstar - Q4 2020 - 36
Morningstar - Q4 2020 - 37
Morningstar - Q4 2020 - 38
Morningstar - Q4 2020 - 39
Morningstar - Q4 2020 - 40
Morningstar - Q4 2020 - 41
Morningstar - Q4 2020 - 42
Morningstar - Q4 2020 - 43
Morningstar - Q4 2020 - 44
Morningstar - Q4 2020 - 45
Morningstar - Q4 2020 - 46
Morningstar - Q4 2020 - 47
Morningstar - Q4 2020 - 48
Morningstar - Q4 2020 - 49
Morningstar - Q4 2020 - 50
Morningstar - Q4 2020 - 51
Morningstar - Q4 2020 - 52
Morningstar - Q4 2020 - 53
Morningstar - Q4 2020 - 54
Morningstar - Q4 2020 - 55
Morningstar - Q4 2020 - 56
Morningstar - Q4 2020 - 57
Morningstar - Q4 2020 - 58
Morningstar - Q4 2020 - 59
Morningstar - Q4 2020 - 60
Morningstar - Q4 2020 - 61
Morningstar - Q4 2020 - 62
Morningstar - Q4 2020 - 63
Morningstar - Q4 2020 - 64
Morningstar - Q4 2020 - 65
Morningstar - Q4 2020 - 66
Morningstar - Q4 2020 - 67
Morningstar - Q4 2020 - 68
Morningstar - Q4 2020 - 69
Morningstar - Q4 2020 - 70
Morningstar - Q4 2020 - 71
Morningstar - Q4 2020 - 72
Morningstar - Q4 2020 - 73
Morningstar - Q4 2020 - 74
Morningstar - Q4 2020 - 75
Morningstar - Q4 2020 - 76
Morningstar - Q4 2020 - 77
Morningstar - Q4 2020 - 78
Morningstar - Q4 2020 - 79
Morningstar - Q4 2020 - 80
Morningstar - Q4 2020 - 81
Morningstar - Q4 2020 - 82
Morningstar - Q4 2020 - 83
Morningstar - Q4 2020 - 84
Morningstar - Q4 2020 - 85
Morningstar - Q4 2020 - 86
Morningstar - Q4 2020 - 87
Morningstar - Q4 2020 - 88
Morningstar - Q4 2020 - 89
Morningstar - Q4 2020 - 90
Morningstar - Q4 2020 - 91
Morningstar - Q4 2020 - 92
Morningstar - Q4 2020 - 93
Morningstar - Q4 2020 - 94
Morningstar - Q4 2020 - 95
Morningstar - Q4 2020 - 96
Morningstar - Q4 2020 - Cover3
Morningstar - Q4 2020 - Cover4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019winter
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019fall
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019summer
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019spring
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20191201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20141011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120405
https://www.nxtbook.com/nxtbooks/morningstar/investorconference2012
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008catalog
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008winter
https://www.nxtbookmedia.com