Reunionising in the Pilbara: Why investors in ASX mining giants should be wary

After just over 4 decades mostly union-free, there has been talk of reunionising in the Pilbara. What’s the big deal, you may ask? Anyone who needs to ask clearly doesn’t remember what happened in the 1970s – because those who do and are invested in the ASX-listed (and private) mining giants based out there would be weary.

The story of Deunionising

Large-scale mining in the Pilbara region of WA began in the 1960s. Iron had been discovered out there, and miners saw the potential for it to become a major export market for Australia, and they were right. Iron ore single-handedly saved the Australian economy from recession during the GFC. But as it was not a cheap exercised, it was dominated by a handful of large companies – Mt Newman Mining, Hamersley Iron, Goldworthy Mining and Cliffs Robe River Iron – all of which have been swallowed up by major miners, the first by BHP and the latter by Rio Tinto.

Unions were formed because it was tough out there. The days of luxury accommodation, 6-figure salaries and 14-days on/14-days off would have been unimaginable at that time. By the 1970s, the workforce had unionised and they did not just want better conditions, but control of the workplace themselves. Workers spent an average of more than 11.5 days on strike, whereas coal miners spent ‘only’ 7.5 days.

This all cultimated in the Robe River dispute of 1986, when management had had a gutful of the most unionised workforce in the Pilbara and low productivity. In 1985-86, productivity was 22.5t per employee. Within 10 years, it was 171.5t. So Robe River, in mid-1986, announced it would cut the workforce by a third and abolish what it called ‘restrictive work practices’. There was a difficult 6 months of industrial action, including a lockout by management, but a deal was struck in 1987. This paved the way for other companies to deunionise and adopt a ‘take it or leave it’ approach to employment contracts. As of 2022, only 10% of total mining workers in Australia were trade union members.

Since then, there’s been little argument that the mining sector has not been better for it. Workers are (mostly) well paid, even though they don’t have the best conditions. Mining has been a major export earner for Australia, and its companies have paid millions of dollars in dividends to their investors (which would include Mum and Dad retail investors, not to mention those who indirectly own shares through their super funds).

Reunionising in the Pilbara

The Albanese government has been keen to take industrial relations back into favour of employees, particularly unionied. Just look at its ‘Same Job, Same Pay’ laws, meaning contractors must be paid the same as employees. The unions have been inspired to try and reunionise the Pilbara. The militant AWU has been leading the charge, trying to force BHP and Rio Tinto to the negotiating table to do it with them. And indeed, a final deal with BHP would be the first union collective agreement in the Pilbara in a decade. They purport to have had membership numbers triple and would try and make any agreements signed without a so-called Majority Agreement invalid.

Why investors should be concerned

Because, even if the push to reunionise does not materialise, it could be a few ugly years. The Minerals Council of Australia has warned that the iron ore industry could become like the construction industry, which has been crippled by union activity. It could also inspire mining workers elsewhere in Australia to unionise and make demands that could render projects unprofitable. And the reality is that if you are anywhere but gold, commodity prices are tough right now.

Granted, some companies may see less of an impact if they have exposure to foreign jurisdictions that are less unionised – Rio and BHP may be relatively unaffected. But Fortescue, which is just a one-trick pony with its only business being iron ore in the Pilbara, could be impacted significantly.

For now, we may appear to be talking up a hypothetical, but investors should watch this space.

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