By Robb M. Stewart in Melbourne and Dave Michaels in Washington
A U.S. lawsuit alleging Rio Tinto PLC misled investors about the
value of its assets in Mozambique is the second serious regulatory
problem in less than a year to rock the mining giant over its
forays in Africa.
The world's second-largest independent mining company was
already grappling with multiple investigations in the U.S., U.K.
and Australia into a $10.5 million payment made to a consultant to
help it acquire rights to a large iron-ore deposit in Guinea known
as Simandou. That revelation forced the departure last November of
Rio Tinto's energy and minerals chief and a legal and regulatory
affairs executive.
On Wednesday, allegations that the British-Australian company
misled investors over its Mozambique coal assets forced its former
chief financial officer, Guy Elliott, to resign from the board of
Royal Dutch Shell PLC. The U.S. Securities and Exchange Commission
is seeking to bar Mr. Elliott and former Rio Tinto Chief Executive
Thomas Albanese from serving as officers or directors of a public
company.
Rio Tinto continued to value the mining assets in Mozambique at
more than $3 billion despite an internal assessment that they were
worth negative $680 million, according to a SEC lawsuit filed this
week in Manhattan federal court.
The SEC is pursuing civil financial penalties and disgorgement
of ill-gotten gains through its lawsuit. Separately, Rio Tinto
agreed to pay GBP27 million ($36 million) to settle claims by the
U.K. Financial Conduct Authority that the company didn't write down
the value of the Mozambique mine in a timely manner.
Rio Tinto said Tuesday that the SEC's claims of fraud are
"unwarranted" and would be proven wrong in court. Mr. Albanese said
he is innocent of any wrongdoing and that the SEC's claims "will be
proved baseless." A spokeswoman for Mr. Elliott said he also
disputes the SEC's charges and will fight them.
Shell said Wednesday that Mr. Elliott stood down over "his
involvement in legal proceedings regarding his former employment at
Rio Tinto" and that he would like to be considered for rejoining
its board once the issue was resolved.
Rio Tinto's shares were down about 1.2% in afternoon trading in
London. Tyler Broda, a mining analyst at RBC Capital Markets, said
the revelations were unlikely to significantly affect Rio Tinto's
share price.
"It will likely cause more noise around Rio's corporate culture,
especially on the back of the Simandou bribery charges from last
year," Mr. Broda said in a note. Rio Tinto says it is cooperating
with all probes into the Simandou case.
The Mozambique and Guinea cases ramp up scrutiny of Rio Tinto's
actions under Mr. Albanese, who resigned in 2013 after the company
announced it was writing down the value of assets around the world
by $14 billion, including $3 billion in Mozambique, as commodity
prices began to fall.
Rio Tinto sold the Mozambique coal business in 2014 for $50
million, or about 2% of what it paid, the SEC said.
The $14 billion figure included a huge impairment on the value
of Alcan Inc., an aluminum processing company that Rio Tinto
acquired in 2007.
The SEC alleged that Messrs. Albanese and Elliott didn't
disclose the problems with the Mozambique assets because they had
already written down the value of Alcan and feared the market's
reaction to another unsuccessful deal.
The project hit several major setbacks, including the Mozambique
government's rejection of transport plans for the coal. The company
knew by the end of 2011 that it could sell only about 5% of the
coal that it had originally assumed, the SEC alleged.
The company later raised $3 billion through debt sold to
investors without revealing the problems with the Mozambique
assets, the SEC said.
In Guinea, internal emails reviewed by The Wall Street Journal
showed that high-level executives including Mr. Albanese approved
the payment in 2011 to a consultant who was close to senior Guinean
government officials.
The emails, which were reviewed by The Wall Street Journal, show
Rio executive Alan Davies asking permission from the company's
then-iron-ore chief, Sam Walsh, to make the payments to François de
Combret, a former Lazard Ltd. managing director.
Mr. de Combret had been helping the company negotiate with the
Guinean government to retain an iron-ore concession in the
country's Simandou mountain range, according to Mr. Davies's email,
and his services "were of the most unique nature," including
helping the company's communications with Guinea's president, Alpha
Condé. Mr. Condé was at the time being advised by Mr. de Combret, a
friend he had met in school in Paris, according to a person
familiar with the matter.
Mr. Walsh, who was Rio Tinto's iron ore chief at the time,
checked the idea with Mr. Albanese, the company's then-chief
executive, who gave the green light but warned Mr. Walsh to "think
of the optics to the [government of Guinea.]," according to the
emails. Mr. Walsh later served as CEO from 2013 to 2016.
Mr. Davies has denied wrongdoing. This year he was named CEO of
Moxico Resources PLC, a copper mining company with assets in
Zambia. A Moxico representative didn't immediately respond do a
request for comment.
Attempts to reach Messrs. Walsh and de Combret have been
unsuccessful and they haven't publicly commented on the issue.
--Scott Patterson in London contributed to this article.
Write to Robb M. Stewart at robb.stewart@wsj.com and Dave
Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
October 18, 2017 09:53 ET (13:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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