The Rio Tinto Limited (ASX: RIO) share price is under pressure today despite iron ore prices holding firmly at US$135.50 per tonne.
At the time of writing, shares in the world's second-largest metals and mining company are fetching $111.24, down 2.22% from its previous close. Accounting for today's move to the downside, the mining giant's share price is now 19% off of its 52-week high.
The sluggish start to the week for the Rio Tinto share price comes amid a renewed focus on the miner's unresolved royalty dispute with Traditional Owners.
A $400 million weight hanging over Rio's head
In July 2020, Rio Tinto discovered and informed the Gumala Aboriginal Corporation (GAC) of an underpayment in relation to the Yandicoogina mine in Western Australia. According to Rio Tinto, these underpayments pertaining to its Land Use Agreement amounted to $40 million.
However, upon conducting a forensic audit, GAC believes the underpayment is $400 million. This is an order of magnitude more than Rio's estimate.
Fast forward more than 18 months, ASX-listed Rio Tinto is still yet to settle its dispute with GAC. The unresolved matter risks overshadowing Rio Tinto's 25th anniversary of its royalty agreement with Traditional Owners in March.
For Rio Tinto, this would only add to its tarnished reputation following the destruction of the culturally significant Juukan Gorge in May 2020.
In an attempt to resolve the underpayment dispute, Rio Tinto is believed to have offered $150 million. The amount is substantially more than the original $40 million offered by the mining company. Although, it is still less than half of what GAC believes to be the rightful figure.
The grey area surrounding the Yandicoogina agreement arises from a difference in how the royalty is determined. Unlike modern arrangements, the much older agreement with GAC is based on the amount of ground disturbance. How 'disturbance' is defined is at the core of this unresolved matter.
Due to these issues, ASX-listed Rio Tinto and GAC are also in the process of negotiating new terms for the agreement. This could see GAC paid based on iron ore sales instead of ground disturbance. In addition, GAC is fighting for part of future royalties to be paid in Rio Tinto shares.
Unearthing Rio Tinto share price performance
The performance of the Rio Tinto share price is flat over the last 12 months. Shares in the mining giant have tumbled in tandem with iron ore prices.
For comparison, the S&P/ASX 200 Index (ASX: XJO) is up 4.8% in the past year. This means ASX-listed Rio Tinto has underperformed the market by ~5%. However, it has provided a better return than other iron ore peers. An example is Fortescue Metals Group Limited (ASX: FMG), which is down 13% in the last year.
