Large Rio Tinto Shareholder Divests on Ethical Grounds

September 10, 2008

Gabriel Caplett

The Norwegian government recently sold its $890 million stake in mining giant Rio Tinto, based on the company’s “grossly unethical conduct” at its Grasberg Mine, in Papua New Guinea. Norway’s Ministry of Finance made the decision after realizing that continued investment in Rio Tinto would “contribute to severe environmental damage.”

Norway’s $375 billion Government Pension Fund-Global invests the country’s oil and gas revenues in foreign stocks and bonds. The Fund was one of Rio Tinto’s largest shareholders and is Europe’s largest equity investor, holding roughly 1 % of all European-listed shares. Norway’s Council on Ethics offers recommendations to the Ministry of Finance regarding the Fund’s holdings.

According to Kristin Halvorsen, Minister of Finance, “Exclusion of a company from the Fund reflects our unwillingness to run an unacceptable risk of contributing to grossly unethical conduct. The Council on Ethics has concluded that Rio Tinto is directly involved, through its participation in the Grasberg mine in Indonesia, in the severe environmental damage caused by that mining operation. There are no indications to the effect that the company’s practises will be changed in future. The Fund cannot hold ownership interests in such a company.”

Since 1996, Rio Tinto has held a 40% stake in the largely open-pit Grasberg Mine and has contributed roughly $1 billion in capital investments. The mine, which borders Lorentz National Park, a United Nations Educational, Scientific and Cultural Organization (UNESCO) heritage site, is considered to be profitable until 2041. Daily, the company dumps at least 230,000 tons of tailings waste into the local river system that contains high amounts of heavy metals, such as copper, lead and zinc, as well as toxic levels of selenium, arsenic and cyanide.

The Council on Ethics maintains the company is “taking advantage of the low environmental standards and the lenient law enforcement in the country where it operates” and that its system of tailings disposal has “led to the destruction of most aquatic life in the waters affected by the discharge.” The Council reports that tailings disposal will increase with future mine expansions and that “there are no indications to the effect that these practices will be changed in future, or that measures will be taken to significantly reduce the damage to the environment.”

In response to a September 9, 2008 Ministry of Finance press release, Rio Tinto Copper CEO, Bret Clayton, said, “We believe we have an excellent safety and environmental record and that this is an unfounded position and that we are an industry leader for many years in this area.”

Rio Tinto spokesman, Nick Cobban, maintained that the company has “an exemplary record in environmental matters, world-leading in fact, and they are given the very highest priority in everything we do.”

Regarding tailings and acid mine drainage contamination, the Council on Ethics reported that, “riverine tailings disposal is undoubtedly the major environmental problem associated with the mining operation today as the daily disposal of 230,000 tons of tailings generates severe and long-term environmental damage. Furthermore, the Council deems it probable that acid rock drainage from the stockpiles will constitute an increasing and considerable environmental problem with potentially far-reaching harmful effects in the future. Consequently, the Council takes as its point of departure that the damage is severe and that there is an unacceptable risk that the environmental impact caused by the mining operation is lasting and irreversible.”

In a response to the Council on Ethic’s December 4, 2007 letter of inquiry Rio Tinto insisted that it “maintains the highest environmental standards at all its operations wherever they are located.”

According to the Council, Rio Tinto did “not address” the mine’s extensive acid rock drainage (commonly-known as “acid mine drainage”) which is “considered one of the most serious mining-related environmental problems across the world.” The Council’s report noted that, “Acid rock drainage from the deposit sites was first observed in 1993, and leaching into the groundwaters has also been reported, causing the pollution of springs in the Lorentz National Park, among others.”

According to Partizans (People Against Rio Tinto And It’s Subsidiaries) founder, Roger Moody, “Rio Tinto has excused its participation in this unacceptable project for thirteen years claiming that, because it doesn’t actually manage the mine, therefore it’s not responsible for its impacts.  In fact, Rio Tinto’s financing proved crucial to the massive expansion of this mine a decade ago, and the company has been directly complicit in creating the unmitigated disaster it is today. The Norwegian government has recognized this. Hopefully other investors will quickly do so too. Just about every major bank, and many pension funds, also have shares in Rio Tinto.”

At Rio Tinto’s April 17, 2008 Annual General Meeting (AGM), several shareholders discussed the extensive environmental and economic devastation that has occurred due to the Grasberg Mine, as well as human rights violations of rape, torture, murder and arbitrary detention linked to the company’s cooperation with the repressive Indonesian military. The Australian Council on Overseas Aid found mine security and military personnel were responsible for the disappearance of 22 civilians between 1994 and 1995. The company has acknowledged that it paid the military $4.7 million in 2001 and $5.6 million in 2002 for its services.

Benny Wenda, an independence leader from West Papua, and founder of the Free West Papua Campaign, spoke at the AGM, raising concerns over the continued Indonesia occupation of West Papua and military control over freedom of speech.  Wenda was “arrested, tortured and threatened with death” for peacefully protesting the Rio Tinto/Freeport McMoRan Grasberg gold and copper mine. He escaped from prison and resides, as an exile, in the UK.

Rio Tinto is the parent company of Kennecott Minerals, which is seeking to open a metallic sulfide mine on the Yellow Dog Plains, southwest of Big Bay, Michigan. According to the US Environmental Protection Agency (EPA), Kennecott is the second largest toxic polluter in the US. The company maintains that, at its Eagle Project, it is “promoting harmony and preserving balance between people and nature.”

State approval of the mine project is currenty in contested case, in Lansing. The Michigan Department of Environmental Quality (DEQ) has admitted, in sworn testimony, that the mine does not meet legal standards to protect the environment and that Kennecott has no contingency plan for a mine collapse or tailings leaks. The DEQ approved Kennecott’s mine, groundwater and air quality permits on December 14, 2007. A final decision regarding the contested case is expected by January, 2009.

The DEQ recently admitted that Kennecott must legally apply for permit amendments for its plans to supply electric power to the mine site and construct a haul road. A surface use lease permit from the Michigan Department of Natural Resources (DNR) has yet to be finalized and a circuit court case regarding the decision has not yet begun. Additionally, the EPA has sent a letter of deficiency to the company regarding Kennecott’s application for an Underground Injection permit. The EPA requested further information and clarification on incorrect information in Kennecott’s mine plan, such as the correct direction of groundwater flow at the site.

Two and a half years after submitting its application, Kennecott still lacks any legally-complete state or federal approvals to open and operate its proposed mine.

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