Beats reality TV: Energy Resources’ chairman tried to hustle Rio Tinto. He’s now lost his job

Fans of high-octane drama-fuelled reality television may be interested in turning to the ASX today.

Energy Resources Australia (ASX:ERA) has this morning done what all ASX companies in defence mode do best: take pot shots at the Australian media. 

The move might be amusing to the most irredeemable market nerds, given that ERA finds itself in this position after firing its own pot shots at Rio Tinto (ASX:RIO) earlier in the year. 

Probably surprising nobody, that hasn’t really worked the way ERA wanted. Rio Tinto, after all, owns 86% of ERA. More on that shortly. 

The chairman of ERA has already agreed to resign, along with two of his buddies on the board (who together comprise the ‘Independent Board Committee,’ which means they aren’t from Rio Tinto.) 

How did we get here? It’s quite a convoluted story. 

What the hell is happening?

Here’s an executive rundown.

ERA is a uranium miner in the NT. It owns the Kakadu and Jabiluka uranium mines, though, both are held now as largely mined-out rehabilitation assets. Rio Tinto, in turn, owns 86% of ERA.

Three of ERA’s board members, including chair Peter Mansell, and independent non-executive directors Paul Dowd and Shane Charles, call themselves the ‘Independent Board Committee’ (IBC). The IBC, probably as no surprise, wants Rio Tinto to buy 100% of ERA.

To this end, the ERA’s IBC commissioned accountants Grant Thornton to write a report valuing the ERA’s uranium assets at a value higher than that recognised by Rio Tinto. Given Rio Tinto's own announcements on this in the recent past, IBC probably did not inform Rio Tinto of this decision.

This report followed an offer to Rio from ERA to buy it back in July. Rio Tinto did not accept the offer; in the supermajor’s own language, the offer still stands. The Grant Thornton report ultimately relied on a mineral resource estimate attached to the Rangers Deep uranium target, with a statement from a geologist positing there could be uranium mineralisation deeper underground.

Key developments following the valuation report

• This possible untapped uranium, the ERA believes, means that its outstanding 14% stake it wants Rio Tinto to buy is actually worth more than what Rio Tinto perceives.

• Rio Tinto, however, refuse to touch the development. It must first be rehabilitated regardless, and then there is opposition from Indigenous landowners.

• Instead of engaging in the negotiation process the ERA’s IBC were probably hoping for, Rio Tinto instead called for Peter Mansell, Paul Dowd, and Shane Charles to resign.

• The three have agreed to do so with little fanfare, meaning the IBC have lost their jobs. This has not stopped them from attacking the media instead.

• However, the IBC note they will only leave the company once a “clear pathway to an interim funding solution for the company is arrived at.” It is entirely unclear what the IBC actually means by this. It appears Rio Tinto aren't too sure, either.

Why doesn’t Rio Tinto want to touch it? 

Still with me? I hope so. Let’s look at some background context. 

While uranium prices have enjoyed upwardly-inclined volatility this year, the supermajor keeps coming back to one thing in its own correspondence on this issue: overwhelming objection to the project from the Mirrar Traditional Owners. 

There is also the issue rehabilitation of the mine, which must be conducted if Rio do want to start mining it again, has already blown over budget and proven to be, just maybe, too difficult of a task. 

But, to those reading between the lines, that may not be the key issue. Rio Tinto, while not enjoying the same kind of run energy supermajors have been enjoying, isn’t exactly strapped for cash. If it needs a few billion, it can find it pretty easily. This hasn’t stopped it from indirectly blaming ERA for the overrun, which may or may not be true. 

The haunting spectre of Juukan 

What Rio Tinto can’t risk, however, is another Juukan Gorge incident. 

If you have forgotten that little debacle in the chaos of the last few years, Rio Tinto blew up an ancient Aboriginal cave that it knew was generally considered pretty special to make way for a mine. 

It isn’t the 80’s anymore: the global CEO quit over the incident. 

Imagine the flack if Rio Tinto now turns around to the Mirrar people and says “you know what? We’re going to develop the uranium mine you have specifically requested we do not develop.” 

The idea is enough to terrify even the most brazen of corporate counsel. 

What doesn’t terrify its corporate counsel is the machinations of the ERA’s IBC. 

Rio Tinto has instead flexed its big toe, and kicked over the dominos that see the ERA’s IBC agree to resign. The IBC, in turn, say they no longer want to work with Rio Tinto, anyway, probably because they hog the sandbox. 

The move works for Rio, too. They can probably pick up the 100% for the price they want, now. 

Are we all reading the same announcement? ERA shares are up 5% in late afternoon trades.