MAC: Mines and Communities

Rio Tinto finally accused of misleading investors, by US judge

Published by MAC on 2019-03-23

London Calling argues that Tom Albanese must now face further charges

Despite abruptly dismissing allegations of dishonourable conduct, made at its 2018 annual shareholders meeting in London, Rio Tinto now faces serious financial and reputational damage [see: When an April shower becomes a perfect storm ].

This is because the US Securities and Exchange Commision (SEC) has been allowed to pursue some claims, first made in October 2017, that the company fraudulently deceived both shareholders and investors as to the real value of a coal venture in Mozambique.

At the centre of the case against Rio Tinto is its former CEO, Tom Albanese - the man forced to resign from the company for mismanagement in 2013, who later became the chief executive offcer of Vedanta [see: Albanese ignominious role in Vedanta ].

Long-standing readers of this website will doubtless recall Mr Albanese's alleged malfeasance and possibly corrupt - certainly immoral - dealings, when he engineered  Rio Tinto's acquisition of the massive Oyu Tolgoi copper-gold venture in Mongolia from Robert Friedland of Ivanhoe. This was effected  by Albanese making key investments in Friedland's Monywa copper mine in Burma, while that country was subject to a virtually universal boycott [see: Rio Tinto's dirty deal with Ivanhoe].

To this day, Rio Tinto has never acknowledged Albanese's critical  role in forging this complex transaction on its behalf.

By rights - certainly the human rights of many Burmese citizens - isn't now the relevant time for the world's second largest mining company to do so?

[London Calling is published by Nostromo Research; no comments made are necessarily endorsed by any other parties. Reproduction is welcomed under a Creative Commons Licence]

U.S. judge says Rio Tinto must face SEC fraud case

Jonathan Stempel


18  March 2019

NEW YORK) - A U.S. judge on Monday rejected Rio Tinto Plc’s bid to dismiss a Securities and Exchange Commission lawsuit accusing the Anglo-Australian mining company of civil fraud in its handling of a failed investment in a Mozambique coal project.

U.S. District Judge Analisa Torres in Manhattan said the regulator may pursue some claims in its October 2017 lawsuit against Rio Tinto, former Chief Executive Officer Tom Albanese and former Chief Financial Officer Guy Elliott.

Torres narrowed the main fraud claim against Rio Tinto and Albanese to focus on the former CEO’s statements about Mozambique growth prospects, finding no proof they intended to overvalue Rio Tinto Coal Mozambique (“RTCM”) by more than $3 billion.

Albanese and Elliott still face SEC claims that their actions led to the overvaluation appearing in a semi-annual Rio Tinto financial report.

Rio Tinto’s market value is more than $93 billion, making the company one of the biggest in the SEC’s crosshairs.

Rio Tinto and lawyers for the defendants did not immediately respond to requests for comment. An SEC spokesman declined to comment.

The SEC accused the defendants of deceiving investors over Mozambique coal assets that Rio Tinto bought in 2011 for $3.7 billion, through a takeover of the former Riversdale Mining.

By overvaluing the assets, despite an internal assessment that they were worth negative $680 million, Rio Tinto was able to raise more than $5.5 billion from unsuspecting U.S. investors, according to the SEC.

Evidence included an internal May 2012 email from an RTCM executive that flagged poor communication between ministries, and the alleged “influence of corruption on decision-making.”

Rio Tinto took a more than $3 billion writedown for Mozambique in January 2013. It sold the assets in late 2014 for $50 million.

The surviving SEC case includes a claim that Albanese intended to mislead investors in 2012 by describing the Moatize Basin, where RTCM was located, as a world-class basin coal deposit and long-term growth opportunity.

“Through these statements, Albanese was misrepresenting material facts to investors,” Torres wrote in her 50-page decision.

In court papers, the defendants said the SEC had failed to establish fraud, and was “plainly wrong” to conclude a big writedown was needed sooner, given the complexities of the accounting procedures and valuation assessments.

The Australian Securities and Investments Commission brought its own civil claims against Rio Tinto, Albanese and Elliott.

The case is SEC v Rio Tinto Plc et al, U.S. District Court, Southern District of New York, No. 17-07994.

Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis and Bill Berkrot

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