Society

Indigenous Australia

The Fortescue way
Fortescue Metals Group has a history of “unconscionable” settlements with Indigenous custodians

In 2003, when Andrew “Twiggy” Forrest decided to have another go at business after the disastrous collapse of his Anaconda Nickel venture, the Australian iron ore industry was dominated by a complacent duopoly composed of two big multinationals: London-based Rio Tinto and the iconic Melbourne-based BHP Billiton. Together, the two com­panies shipped around 200 million tonnes a year on parallel railway lines from their mines around Tom Price and Newman, which are located between 285 kilometres and 425 kilometres inland from their respective ports.

Few would have imagined back then that Australia’s exports of this bulk commodity would increase four-fold to more than 800 million tonnes within 15 years, or that the price would more than triple to an average of US$100 a tonne over the same period, peaking at about US$230 a tonne in May 2021. But one individual who did envisage this fortunate future was Andrew Forrest. “We took the view in 2003 that China had awakened,” he reflected. Not that the two big multi­nationals had woken up; they were ignoring advice from the federal government’s resources agency to expand production, which meant that the ensuing boom was as much a case of short supply as it was of burgeoning demand. Forrest’s astute reading of the industry was reinforced by a friend who worked for Rio Tinto and told him the company was doing little to expand capacity. The rising demand would be driven by the steel-intensive economic transformation underway in China and other emerging Asian countries. Steel requires two key components – iron ore and coking coal – and Australia was, and still is, the world’s dominant supplier of both.

Forrest began in 2003 to acquire a small stake in the listed explo­ration company Allied Mining and Processing. In July of that year he became chairman of Allied, and by January 2005 he held a 47 per cent share in the company as a result of an options deal. Forrest had turned an investment of $8 million into a stake already worth $400 million – and he had made this play even though it wasn’t until early 2005 that the iron ore price began to rally, from a lowly US$30 a tonne to around double that amount. With the company under his control, Forrest renamed it Fortescue Metals Group (FMG), a nod to the colonial ben­efactor of the 1861 expedition into the Pilbara.

Unlike the established miners, who worked rich but confined tenements, Forrest’s approach involved acquiring a vast network of exploration tenements over the Pilbara region, often picking up those that had been discarded by the major miners. When Forrest bought into Allied, it had less than 500 square kilometres of tenements, but within a few years Forrest had expanded that 100 times over, far exceeding the tenements of Rio and BHP combined. The rush to acquire tenements, rather than actually producing iron ore, at one point prompted company secretary Malcolm James to joke loudly that Fortescue was an “iron ore company with no iron ore”, leading to a sharp rebuke from Forrest.

Some of the tenements FMG picked up had lower grades of iron ore, typically around 56–57 per cent iron content, compared with the 62–63 per cent of the majors. But Forrest’s mining strategy was to scrape the surface over a much larger area, rather than digging deep into a well-endowed ore body. This meant that, in some respects, FMG had a much greater impact on the country it was mining, especially in relation to the Aboriginal heritage that had been left behind when the pastoral industry rounded up the Pilbara’s original inhabitants in the second half of the 1800s. As a new entrant to the industry and faced with huge infrastructure costs, including the building of a 260 kilometre railway line running alongside the BHP line, Forrest’s objective was to become the lowest cost producer in the Pilbara region. And this included settlements with its Indigenous custodians.

At this early stage of the iron ore boom, native title had been in place for only a decade and the two multinationals had started pay­ing production-based royalties to traditional owner groups as part of their land access agreements. These agreements generally offered a return based on the revenue produced by the mine (although Rio’s first post-NTA agreement for the Yandicoogina mine compensated on the basis of the area of land disturbed). FMG, on the other hand, adopted a very modest, capped dollar approach. However, the estab­lished players did not pay retrospective royalties to traditional owners on the mines that were in operation before the Native Title Act 1993 (Cwlth) (NTA) came into effect, which made up the vast majority of their production. This put the newer player at a distinct disadvantage.

FMG was not alone in applying pressure in order to secure low-cost agreements with traditional owners. These groups are vulnerable in these situations because they usually lack adequate and independ­ent funding for legal and industry advice. During Rio Tinto’s early Pilbara negotiations around 2004, it insisted on choosing the law firm to represent the native title party and went as far as planting an insider in the group. Rio was pressing the native title body to accept a mod­est royalty of 0.35 per cent. They eventually offered a 0.5 per cent royalty for all of its Pilbara agreements signed during the expansion phase, beginning in the 2000s. BHP Billiton agreed to similar terms. Gold-mining royalties range from 2 to 3 per cent, whereas iron ore is considered a bulk commodity and so attracts a lower royalty. But the iron ore agreements were generally structured so that some of the payments, typically about one third, were diverted into future funds managed by trustees, while other trusts were set up to distrib­ute funds for more immediate needs such as scholarships, healthcare and funeral expenses.

Even when compared to Rio’s tactics, FMG’s conduct would become more extreme and aggressive than what has gone on else­where in the iron ore industry – and quite possibly the entire mining industry in this country. In media interviews and comments to share­holders, Forrest disparaged the benefits of royalty payments to traditional owners, glossing over the fact that this view also saved the company a great deal of money. Forrest’s plan to achieve low-cost compensation to traditional owners drew on his upbringing on Minderoo Station in the Pilbara, as he had known some of the people he was to negotiate with for many years. Payments to traditional own­ers aren’t essential under the NTA, which grants only a weak “right to negotiate” with developers for a period of six months. However, most companies sought to reach settlements as part of being good corpo­rate citizens, and to avoid unnecessary delays. These agreements also afforded a form of insurance against any claim for compensation that might arise if an Aboriginal group achieved a native title determina­tion of exclusive possession in the future. Companies did need to settle with traditional owner groups in order to obtain approvals under the Western Australian Aboriginal Heritage Act 1972 (AHA). Section 18 of this Act allows companies to apply to the government to damage or destroy Aboriginal sites. This is hugely significant, given that any min­ing development in Western Australia is likely to run into significant remnants of Aboriginal occupation.


When FMG went to develop its first mines in the Pilbara’s Chichester Ranges, about 260 kilometres southeast of Port Hedland, it commenced nego­tiations with Elders of five communities: the Nyiyaparli; the Palyku; the Martu Idja Banyjima; the Puutu Kunti Kurrama and Pinikura; and the Eastern Guruma. FMG told investors that it could develop these projects rapidly because it had very good relations with the traditional owners. In a 2006 presentation it claimed “Strong Aboriginal support – Native Title and Heritage surveys completed”, regarding its proposed Cloudbreak and Christmas Creek mines.

The traditional owner groups were represented in the negotiations by the Pilbara Native Title Service (PNTS), a subsidiary of the Yamatji Marlpa Aboriginal Corporation (YMAC), which is a native title rep­resentative body that receives federal government funding to support Aboriginal communities in this regard. But the groups’ relationships with their legal representatives broke down as a result of the difficult and drawn-out negotiations with FMG.

The Nyiyaparli, whose country extends across the Chichester Ranges, were preparing to lodge a vast claim over 36,684 square kilometres of land overlapping the FMG tenements. The claim was registered with the federal regulator, the NNTT, on 1 September 2005. This meant the claim had passed the registration test – a significant milestone – and was allowed to proceed. This fact gave the Nyiyaparli considerable leverage in negotiations with FMG, as it meant they could slow down the development of the site. So, in my opinion, the company set about trying to exploit – or, indeed, foment – divisions in the community. Because the Nyiyaparli were at an impasse with their legal representa­tives, FMG saw an opportunity to broker a land access agreement with some of the Nyiyaparli elders directly. The company engaged a Perth law firm to act for two leading members of the claim group, David Stock and Gordon Yuline. Forrest had a good relationship with Stock, a 74-year-old who had worked on the Forrest family’s Minderoo Station. Stock had taught Forrest and his brothers to ride horses. In August 2005, Stock and five other Nyiyaparli Elders were flown to Perth for the signing of the agreement in the FMG head office – with­out legal representation. The revised agreement removed significant cultural heritage and environmental provisions that had been set­tled between FMG and the Nyiyaparli in earlier negotiations. And the financial compensation amounted to astonishingly small, unin­dexed cash payments of 2.5 cents a tonne, and a couple of Toyota LandCruisers to sweeten the deal. (By comparison, compensation paid by the established iron ore producers was in the order of 50 cents per tonne under the prevailing iron ore price, and would rise to almost $1 per tonne during peak periods.) Immediately after the signing, the agreement was celebrated on the FMG website, together with a pho­tograph of Forrest and the Nyiyaparli Elders.

Two days later, the Elders told journalists that they had not fully understood the agreement and had felt pressured to sign. Realising the error they had made, the Elders returned to PNTS and asked to have the agreement voided. Raymond Drage, chairman of the Nyiyaparli group and one of the signatories, said that FMG had offered an imme­diate payment of $400,000 as an incentive to sign. He said the Elders had said they wanted to seek legal advice, but FMG’s chief negotiator had complained that there had already been many delays and that FMG could take the matter to the NNTT for arbitration. “They had us in a tight corner,” Drage told journalists. Stock said: “I didn’t know what was going on. I feel like they made me sign, they kept calling me uncle. I’ve done a silly thing.” Despite facing an action in the Federal Court to overturn the deal, FMG insisted on paying the balance of the $400,000 signing fee (having already paid $80,000), to keep the project moving. A director told the media: “We have an agreement which was reached in good faith. The major issue for FMG is to move our project forward in a timely manner. Delays of this nature are disconcerting. We will wait until the writ is served before acting accordingly.”

Forrest rejected any suggestion of misconduct. He said he had family who had relations with the Nyiyaparli going back a generation, and that the Nyiyaparli people had contacted FMG directly to make an agreement after becoming frustrated with PNTS, which he accused of having a self-serving agenda. Forrest had been attending the famous Diggers & Dealers mining conference in Kalgoorlie – where scant­ily dressed waitresses serve attendees at the gala dinner – but he had returned to Perth to share in a celebration with the Elders the day after they signed. “It was an incredibly friendly and convivial envi­ronment, so obviously I’m very surprised,” he said. PNTS wrote to FMG and asked it not to contact the Elders directly, and the Nyiyaparli returned the $400,000. PNTS said in a statement that the agreement “appears to be blatantly unconscionable” and made plans to go to the Federal Court the following week to have it declared so. FMG fought back by filing a defamation case in the Western Australian Supreme Court against YMAC, its chief executive and a legal consultant for statements made about FMG’s conduct in this case. PNTS lawyer James Fitzgerald said none of the six Nyiyaparli representatives spoke English as their first language and had not understood the full meaning or implications of the agreement. “There has clearly been no informed consent given by the Nyiyaparli people under these alleged agreements,” he said. “If our instructions are accurate, and I have no reason to doubt them, this is one of the most blatant examples of unfair and unconscionable conduct by a mining company that I have seen in 15 years’ experience as a lawyer.”

FMG’s tactics backfired in this instance. With the threat of going to court to have the agreement declared unconscionable, they were forced back to the negotiating table. The position of the main Nyiyaparli group was aided by a resolution that said the entire group had to ratify any agreement. Nonetheless, the experience with the Nyiyaparli helped FMG to write a playbook for dealing with resist­ance from native title groups, which the company was able to refine in subsequent negotiations with other groups in the Pilbara.

 

This is an edited extract of Title Fight by Paul Cleary, published by Black Inc.

Paul Cleary

Paul Cleary is a policy analyst and author of five nonfiction books. He has a doctorate from the ANU for a thesis on Australia’s policy framework for managing its resources wealth and outcomes for Indigenous communities in the Pilbara.

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