19 October 2017

Mozambique: Rio Tinto Charged With Fraud Over U.S.$3.7 Billion Tete Coal Mine Deal

Photo: Leadership
U.S. dollars (file photo).

Rio Tinto and two former bosses were charged with fraud Tuesday by the US regulator, the Securities and Exchange Commission (SEC), over how they accounted for their disastrous purchase of the Riversdale coal mine in Tete. Rio Tinto bought Riversdale in 2011 for $3.7 billion, and sold it in 2014 for $50 million to the Indian state company ICVL (International Coal Ventures Ltd).

The SEC says Rio, its former chief executive Tom Albanese and ex-finance director Guy Elliott had sought to hide or delay disclosure of problems associated with the purchase of Riversdale. “Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch. They tried to save their own careers at the expense of investors by hiding the truth,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. Both resigned from Rio Tinto in 2013.

Meanwhile, in the UK, the Financial Conduct Authority (FCA) said Tuesday it had fined Rio £27.4 mn ($36 mn) for breaching disclosure rules, the biggest fine the FCA has levied on a company for a listing-rules breach. The FCA said Rio had failed to carry out an impairment test and to recognise a loss on the value of Riversdale coal assets in Mozambique when it published half year results in 2012. “The FCA considers that this demonstrated a serious lack of judgement. There were indicators of impairment for the Mozambique assets which meant that Rio Tinto was required to carry out an impairment test.”

At issue in both cases is not that Rio Tinto bought the mine for a hugely inflated price, but rather that it took two years, until 2013, to admit it. The SEC case is that Rio and its senior executives soon became aware there was less coal and of a lower quality than they had previously thought, and that an application to barge the coal to port for export had been rejected by Mozambique authorities. Nevertheless, Rio Tinto raised $5.5 bn from US investors, including $3 bn for Mozambique, when Albanese and Elliott had allegedly already been told that the mine was likely worth negative $680 mn. SEC says the alleged fraud was only uncovered in January 2013 when a whistle blower discovered the inflated value and told the company's chairman Jan du Plesis.

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