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Metals Markets Steel for Price Rises as Australia Pushes to Save Cultural Sites

By Rhiannon Hoyle 

SYDNEY-- Rio Tinto PLC's destruction of two ancient caves in Australia to expand an iron-ore mine could have ramifications for global commodity markets if local lawmakers intensify scrutiny of mining activities that threaten heritage sites.

Among the most controversial recommendations made by a federal-government inquiry into the destruction of the rock shelters at Juukan Gorge in Western Australia in May is a moratorium on expansions of existing mines or new pits that encroach on sites of cultural or historical significance. Even if lawmakers opt for a less hard-line approach, experts warn of potential delays to production and higher costs that could affect supply of key raw materials such as iron ore, used to make steel.

None of the recommendations handed down by the inquiry in its interim report on Wednesday are binding, but miners risk inflaming tensions with some investors who feel the industry needs to show greater sensitivity to environmental and cultural issues if they don't accept them. They also face sensitive negotiations with indigenous groups that are the traditional owners of the land.

Metals prices have been rallying as China's economy bounces back strongly and other major markets recover from the coronavirus crisis. Copper prices have risen to their highest level in almost eight years. Iron ore is one of the best-performing assets this year, fetching $150.75 a metric ton on Wednesday, its highest price since early 2013.

China's unexpectedly strong appetite for these commodities has raised concerns over whether there's enough supply, with many analysts predicting market deficits for iron ore and copper through at least the middle of next year.

Delays to mining projects in Western Australia, where companies dig up metals including copper and gold, could push commodity prices higher and exacerbate shortages already worsened by pandemic-driven disruptions to operations elsewhere. Iron ore is considered to be most at risk because Australia accounts for more than half of the world's trade in the commodity by sea.

"This could be a watershed moment for the Western Australia mining industry and could impact Western Australia iron-ore production, and possibly other commodities, in 2021 and beyond," Goldman Sachs said.

Already there are tensions between miners and some investors following the report into the loss of the Juukan caves, which contained a trove of artifacts that indicated they had been occupied by humans more than 46,000 years ago.

Fortescue Metals Ltd., the world's fourth-largest iron-ore exporter by volume, rejected the idea of a voluntary moratorium on new heritage consents. "We do not believe that this is either a feasible or practical solution," Elizabeth Gaines, Fortescue's chief executive, said.

Fortescue said it had worked with indigenous groups to protect and avoid nearly 6,000 heritage sites threatened by its mining activities.

Miners must balance the need to replace the ore that they unearth with respecting the interests of indigenous groups. Fortescue pointed out that the iron-ore industry has been a pillar of Australia's economy as it emerges from a first recession in 29 years.

"A moratorium would unnecessarily stall mining, infrastructure and other activities for an unknown and possibly extended period," said Tania Constable, chief executive of Minerals Council of Australia, an industry group.

Still, many investors feel the industry needs to do more, and have pushed for leadership changes when standards fall short. Rio Tinto Chief Executive Jean-Sébastien Jacques and two other executives were ousted after several investors criticized the company's initial response to the caves' destruction because no one had been held accountable.

Hesta, an Australian pension fund for health-care workers, said it strongly supports the recommendation that companies with existing heritage approvals, known as Section 18 permissions, suspend related works until they can verify consent by traditional landowners.

"The inescapable findings of the inquiry are that Aboriginal heritage sites remain vulnerable to destruction," said Debby Blakey, Hesta's chief executive. "It would be unacceptable to investors that boards of mining companies are not actively and transparently seeking to understand their exposure to this risk."

Kim Christie, an iron-ore analyst at Wood Mackenzie, said a near-term squeeze on commodities supply from Australia isn't likely. The final report from the inquiry won't be finalized until next year. Still, there is a risk of higher mining costs and delays to expansions or new mines later as miners sharpen their focus on heritage issues and consultation with traditional owners, she said.

"Certainly moving forward if there is going to be that greater level of tightness [in supply] it could support prices higher than we otherwise would have thought," Ms. Christie said.

Scrutiny will especially fall on Rio Tinto. A moratorium on new heritage consents could affect up to 12 projects that Rio Tinto has planned over the next five or so years to maintain its iron-ore production at current rates, Goldman Sachs said. That means there is a risk that Rio Tinto won't ship 327 million tons of iron ore next year as the bank had earlier forecast.

Rio Tinto said it is reassessing its mining operations in places with identified heritage sites that could be affected over the coming two years.

"I think Rio Tinto would rather forgo a few tons than their reputation," said Ms. Christie, of Wood Mackenzie.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

 

(END) Dow Jones Newswires

December 10, 2020 06:04 ET (11:04 GMT)

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