from Eureka Report
It’s been a long time since Rio Tinto was on a stockbroker’s Sell list, which is hardly surprising as the big coal, copper and iron ore producer has trebled in price over the past four years, from $28.40 to $86.85 at the close on Friday.
But deep inside the research department of the more thoughtful broking houses, especially those with a grasp of history, a warning bell is ringing because Rio Tinto is at the top of a union movement hit-list.
Other companies are also on that list which is similar to the private school hit-list drawn up by former ALP leader Mark Latham, when he was leader of the Australian Labor Party before the last federal election.
BHP Billiton is probably second as a target for “re-unionisation”, especially of its iron ore and coal divisions. The current darling of some stockbrokers, Fortescue Metals, is also high on the list because it will be at its most susceptible to workforce pressures early next year, just before its scheduled first iron ore shipments.
Other leading mining stocks potentially exposed to union pressure within a returned Labor government would be Oxiana, because it is also at a delicate point at its new Prominent Hill copper and gold mine; and Woodside Petroleum, as it gets ready to build its Pluto liquefied natural gas project.
No one is yet suggesting that investors adjust their portfolios to account for threats from the union movement, and its political arm, the Australian Labor Party. But it is worth remembering that one created the other after the great shearer’s strike of 1890.
This piece of economic history and more contemporary industrial/political events are shaping as factors that will influence future investment decisions should the ALP win the next federal election – as predicted by most opinion polls – and scrap the Australian Workplace Agreements (AWA), or employment contracts, under which an estimated 80% of resource sector workers are currently employed. At Rio Tinto, just-retired chief executive Leigh Clifford recently revealed only 8% of staff are union members.
The most vulnerable
And, once these intangible issues are considered it becomes clear that there are three categories of company in the resources sector exposed to the costs associated with a resurgence of union power:
First, and lowest in terms of risks, are “steady-state” miners, which simply face higher wages bills. These are companies run by managements that will simply cave in to union demands rather than risk missing the best of the boom in commodity prices.
Second, and much higher up the risk scale, are companies building new projects. This is a time when they are exposed to industrial blackmail such as strikes and other construction site stoppages. Fortescue, Oxiana, Woodside and Alumina are the top four in this category of big resource companies – with a long tail of smaller miners potentially exposed.
Third, and in a category all of its own, is Rio Tinto. It is the company that has done more over the past 20 years to destroy union dominance of the Australian mining industry, and because it is the heir of the union movement’s Great Satan, Robe River. It was Robe River under Charles Copeman that broke the back of the union movement in WA’s iron ore mining industry.
Now, it is highly unlikely that the resources sector faces a return to the obscene situation confronted by Copeman when he inherited control of the iron ore mining company Robe River – although it is worth remembering how bad conditions where in the mid-1980s.
Copeman identified 284 “restrictive work practices” forced on Robe River (or accepted by a weak management, depending on your point of view). Classics, which should be carved in stone as perpetual reminders of the extremes of union domination, included demands (over which work stopped) for at least three flavours of ice cream and crunchy peanut butter in the canteen, and rotary back scrubbers in the showers.
Copeman’s strategy, which involved sacking all 1100 workers and re-hiring the people he wanted, made Robe River the union movement’s most hated company, and that hatred transferred across to Rio Tinto when it ultimately became parent company to the iron ore miner.
'Scaremongering'
Both former Prime Minister Paul Keating and trade union leader Greg Combet have accused the mining industry of scaremongering over the ALP’s proposed abolition of AWAs. Both point to the coal industry as an example of how productivity increased at a faster rate over the past 10 years than in the metal mining sector.
Combet said in late March that in the 10 years to 2006 productivity in the WA iron ore industry increased by an average of 0.33% each year, while the coal industry increased by 2.87% a year.
What no one pointed out at the time is that he was “cherry picking” his decades. Copeman’s revolution took place in the years after the Robe River strike of 1988. In other words, iron ore set the pattern. Coal played catch-up.
Until the detail of the ALP’s industrial relations policy is known investors would be acting prematurely to use fear of future potential change as a basis for making investment decisions.
Michael Kiernan, chairman of three small mining companies and a former chief executive of the manganese and nickel miner Consolidated Minerals, says that removal of AWAs would not have an immediate effect on the mining industry. “But it will bring Australia to its knees over the next 10–20 years.”
Kiernan is probably exaggerating, but his warning should serve as a wake-up call to investors that behind the political debate is a very real threat to the future value of their investments.
And, as every thinking person knows: those who forget the lessons of history are condemned to repeat them! |
