Published: Thu, October 19, 2017
Markets | By Noel Gibbs

Rio Tinto accused of fraud over '$3 billion' coal mine

Rio Tinto accused of fraud over '$3 billion' coal mine

Rio failed to carry out an impairment test and to recognise an impairment loss on the value of mining assets, which should have been disclosed in 2012 half-year results, the FCA said.

FTSE 100-listed mining giant Rio Tinto PLC and two of its former executives have been charged for fraud by United States regulators for inflating the value of coal assets as it also paid a more than GBP27 million fine to UK regulators related to the same issue.

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 U.S. federal securities laws over the ordeal.

2017 - The U.S. Securities and Exchange Commission charges Rio Tinto, along with Albanese and Elliott, with fraud.

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Instead, they concealed the adverse developments, allowing Rio Tinto to release misleading financial statements days before a series of debt offerings in the US.

But Rio Tinto fired back in its own statement, calling the SEC case "unwarranted" and saying the company "intends to vigorously defend itself against these allegations".

In the USA, the SEC allegations also centre on its multi-billion dollar purchase of coal assets in Mozambique, sold a few years later for $50m. 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. Rio Tinto raised $5.5 billion from USA investors, approximately $3 billion of which was raised after May 2012, when executives at Rio Tinto Coal Mozambique had already told Albanese and Elliott that the subsidiary was likely worth negative $680 million.

"When all the facts are considered by the court, or if necessary by a jury, the SEC's claims will be rejected", the company's statement reads. The SEC seeks permanent injunctions, return of allegedly ill-gotten gains plus interest, and civil penalties from all the defendants, and seeks to bar Albanese and Elliott from serving as public company officers or directors. He resigned as CEO of another mining giant, Vedanta Resources, in August. In a filing with a district court in NY, the SEC accused the company and the two former senior executives of fraud. The SEC greatly appreciates the assistance and collaboration of the U.K. Financial Conduct Authority and the Australian Securities & Investments Commission.

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"We sincerely hope he satisfactorily resolves those proceedings and, that in that event, he would like to be considered for rejoining the board", said Charles Holliday, Shell's chairman.

Alongside the SEC investigation, Rio Tinto received a £27.4 million fine by the UK's financial watchdog for failing to meet disclosure and transparency rules over regarding its Mozambique mining assets. This continued until 17 January 2013 when Rio Tinto announced an impairment of the Mozambique assets, writing off approximately 80 per cent of the value of the investment in the Mozambique mine. Finally, Zacks Investment Research upgraded Rio Tinto PLC from a "hold" rating to a "strong-buy" rating and set a $56.00 price target for the company in a research note on Saturday, October 7th.

'Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch. "The case is now closed".

Shares in Rio Tinto were 1.2% lower at 3,666.00 pence on Wednesday, one of the worst performers in the FTSE 100, although the stock is still up 16% in the year to date.

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