Rio Tinto chiefs lied about losses to cover their backs

MINING bosses misled investors and their own board to try to hide the rapid drop in value of a mining project, prosecutors allege.

Rio Tinto’s former chief executive Thomas Albanese and his finance officer Guy Elliott ignored warnings that the coal assets in Mozambique were worth billions less than they had paid for them, court documents say.

Instead they allegedly raised billions of dollars from investors and kept problems from shareholders as they sought to repair damage from an earlier investment.

The pair and the company have been charged with fraud by the US Securities and Exchange Commission (SEC) and they could be banned from being company directors if they lose the case.

Yesterday, Elliott, 61, stepped down from the board of oil firm Shell as Rio said it would ‘vigorously defend’ the claims.

The case comes after the UK Financial Conduct Authority (FCA) fined Rio a record £27m on Tuesday for misleading investors over the value of the assets.

The FCA said Rio showed ‘serious lack of judgement’ and had only avoided a 30pc higher penalty by agreeing to settle early.

Rio bought Riversdale Mining Limited in 2011 for £2.8bn as bosses tried to protect the company against depleting natural resources by investing in coking coal, for steel production.

The deal was supposed to restore confidence in Albanese’s acumen after an aluminium company he paid £28.8bn for in 2007 ended up almost worthless. The pair would lose their bonuses over the deal, described as disastrous by the chairman and an ‘embarrassment’ by Elliott. Prosecutors allege that during Rio’s due diligence for Riversdale, experts flagged up risks to Albanese, but the pair did not disclose these to directors.

Instead, the mines were described as an asset that could produce 45m tons of coal a year. Prosecutors say the purchase rested on assumptions they could transport the coal down the Zambezi river and on rail lines to a port, and that 30m tons would be highvalue coal.

‘Each of these assumptions quickly proved to be incorrect,’ prosecutors say, due to logistical problems and Mozambique’s government rejecting plans. Prosecutors say Alba- nese and Elliott understood the significance of the problems, but failed to publicly disclose them or tell the audit committee and auditors.

Instead, they went to New York’s bond markets with materials referencing a £2.3bn valuation of the coal company, and raised billions from investors.

Prosecutors said: ‘Rio Tinto and Albanese’s statements to shareholders gave the misleading impression that Rio Tinto Coal Mozambique remained on track, and concealed from shareholders the fact that Rio Tinto was in fact on the cusp of another multi-billion dollar impairment under Albanese’s leadership.’ The problems were exposed after an employee realised what was happening and went to the chairman, Jan du Plessis.

Albanese and Elliott resigned in 2013 after Rio announced a £2.3bn write-down on the coal assets in its 2012 year- end accounts, with du Plessis saying the scale of the loss was ‘unacceptable’.

Last night, a Rio spokesman said: ‘Rio Tinto believes that the 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.

‘The FCA made no findings of fraud, or of any systemic or widespread failure by Rio Tinto. The case is now closed.’

He added the Australian Securities and Investments Commission was also reviewing the impairment and the company would update the market in due course.

The SEC is seeking the return of allegedly ill-gotten gains plus interest, and civil penalties from all the defendants, and to bar Albanese and Elliott from serving as public company officers or directors.