BHP and Rio de Janeiro are plagued by sexual harassment lawsuits: Russell

The sexual harassment suits filed against BHP Group in Australia and Rio Tinto, global mining giants, are not just another public relations disaster or possible financial hit.

These allegations threaten the future of two of world's largest miners who want to be at the forefront of the energy transformation by producing the metals required to decarbonise world economies.

Deft public relations, a willingness and determination to eliminate future bad behaviour as well as a willingness to accept genuine claims can help to limit the short-term impact of class action lawsuits.

The longer-term effects may be more serious for an industry that is already struggling to find enough skilled workers and has little appeal to the next generation.

The class-action lawsuit filed by JGA Saddler on Wednesday alleges sexual harassment in mines operated by both companies.

JGA Saddler claimed that women who complained about harassment were discriminated against by miners. It also said it expected "thousands" of female employees at both companies to join class actions.

Both companies have issued what can be called pro forma statements.

Sexual harassment is not acceptable in any workplace. BHP, world's biggest mining company, issued a statement saying that it was committed to creating a workplace where everyone felt safe and respected.

Rio, the largest iron ore mining company in the world, issued a statement saying it takes "all such allegations with utmost seriously".

Rio's share price dropped 1.2% to A$123.81 ($78.99) in Sydney, while BHP's rose 0.4% to A$42.00.

The market's sanguine reaction likely reflects the fact that the size of the lawsuit, and the potential damages that could be paid in the end, are still uncertain.

While the market is in a waiting-and-seeing mode about the lawsuit, it's clear that BHP and Rio are underperforming the S&P/ASX 200 Index.

BHP reached a record high A$37.73 per share on April 13th, 2011, amid the commodity boom driven by China as part of the recovery of the global financial crisis in 2008.

The price then went into a downward trend until the start of 2016. It finally recovered by December 2020 to its peak level in 2011. Since then, the price has rallied 11.3% up to Wednesday's closing.

Rio tells a similar tale. It peaked at A$111.79 per share on May 22, 2008. While it recovered in 2011, it took until December 2020 to surpass its previous record.

Rio has grown by about 13.4% since then, while the S&P/ASX 200 Index has grown by around 20.6% in the same time period.

Future Needs

BHP and Rio must convince investors of the viability and profitability of their plans in order to lead the energy transition.

Theoretically, there is no reason for the companies to be unable to do this.

Both companies are well-positioned in transition metals like copper and aluminum, and they are building portfolios of other metals that are important such as lithium.

Both companies argue that the production of steel is essential for the energy transition and are working to reduce the carbon content in the process.

The lawsuit, as well as the damaging revelations that may follow it, could threaten the ability to have the skilled workforce needed for the energy transition.

The harder it is to recruit workers, the more stories there are about the appalling sexual behavior of male miners in Australia, and allegations that managers at mid-level were more interested than anyone else in covering it up.

Researchers from McKinsey found that the number of mining engineers in Australia and the United States dropped 63% between 2010 and 2018.

Imagine trying to hire young workers to work in remote mines, especially when they are influenced by media stories about inappropriate behavior, careless management, and poor culture.

BHP, Rio, and other mining companies face the risk of not being able to find enough qualified staff. This means they will either need to pay higher salaries or convince governments that immigration should be increased.

Disclosure: Clyde Russell, as an investor of a fund at the time this article was published, owned shares in BHP Group.

These are the views of the columnist, who is also an author. (Editing by Michael Perry).

(source: Reuters)