Rio Tinto and two former leading executives, including Tom Albanese, have been charged with fraud in the United States over the company’s dealings in Mozambique earlier this decade.
The miner acquired coal assets in Mozambique in 2011 through a $US3.7 billion takeover of Riversdale Mining. In 2015, Rio then sold the assets for $US50 million to International Coal Ventures, a year after recording a write down of close to $US3 billion on the operations.
Rio’s issues in Mozambique contributed to former chief executive Albanese and former chief financial officer Guy Elliott stepping down from their positions, and now all three have been charged with violating antifraud, reporting, and other provisions of US federal securities laws over the ordeal.
In response, Rio said it “intends to vigorously defend itself against these allegations”.
“Rio Tinto believes that the Securities and Exchange Commission (SEC) case is unwarranted and that, when all the facts are considered by the court, or if necessary by a jury, the SEC’s claims will be rejected,” Rio today reported.
The SEC complaint, filed in federal court in Manhattan, alleges that Rio, Albanese and Elliott failed to follow accounting standards and company policies to accurately value and record its assets.
Instead, the SEC continues, as the project suffered one setback after another, resulting in the assets losing value, they sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio directors, audit committee, independent auditors and investors.
“As alleged in our complaint, Rio Tinto’s top executives allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multi-billion-dollar transaction was a failure,” SEC Enforcement Division co-director Stephanie Avakian said.
According to the SEC complaint, Rio acquired the Mozambique coal assets in 2011 shortly after disclosing losses associated with its previous acquisition of Alcan.
The Mozambique acquisition was also unsuccessful, according to an SEC announcement, as it was based on the incorrect assumption that Rio could inexpensively mine, transport, and sell large quantities of high-quality coal, chiefly using barges for shipping.
The SEC’s complaint alleges that the project suffered setbacks almost immediately, as Rio, Albanese and Elliott learned that there was less coal and of lower quality than expected, and that Mozambique had rejected its barge application.
According to the SEC, the complaint alleges that the drop in quantity and quality of coal, coupled with the lack of infrastructure to transport it, significantly eroded the value of the acquisition.
The complaint alleged that after already impairing Alcan twice, Rio, Albanese, and Elliott knew that publicly disclosing their Mozambique issues and rapidly declining value would call into question their ability to pursue the core of the company’s business model to identify and develop long-term, low-cost, and highly profitable mining assets.
Instead, they concealed the adverse developments, allowing Rio Tinto to release misleading financial statements days before a series of debt offerings in the US.
“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,” SEC Enforcement Division co-director Steven Peikin said.