Thursday, December 01, 2016

For Rio Tinto, Another African Corporate Problem
U.S. authorities examine timing of $3 billion charge in Mozambique, as company investigates Guinea payment

Rio Tinto’s plans to ship its Mozambique coal along the Zambezi River proved unworkable because of problems dredging the river and securing government approvals. PHOTO: GORAN TOMASEVIC/REUTERS

By RHIANNON HOYLE
Wall Street Journal
Dec. 1, 2016 6:56 a.m. ET

SYDNEY—Rio Tinto PLC’s new chief executive faces another regulatory headache, as U.S. authorities investigate the mining company over an impairment booked in 2012.

The Anglo-Australian miner said on Thursday it is cooperating with a probe by the U.S. Securities and Exchange Commission, which it said started in 2013. The company was responding to media reports that the SEC is examining the timing of $3 billion in impairment charges on a Mozambique coal deal.

The write-down came as part of $14 billion in charges—including against another ill-timed deal, Rio’s 2007 acquisition of Alcan Inc.—that in early 2013 triggered the departure of Tom Albanese as chief executive.

News of the investigation comes as Rio Tinto pursues a separate internal investigation of payments made to a consultant who helped it acquire mining rights in Guinea. Rio Tinto has said it turned over emails and additional information about the payments to authorities in the U.K., Australia and the U.S.

That probe prompted the company last month to fire one of its most senior operational executives and its head of legal and regulatory affairs, sending shock waves through the executive ranks.

“I take integrity and our code of conduct very, very seriously,” Jean-S├ębastien Jacques, who has led the global miner since July, said at an industry event in Melbourne, Australia last week. He declined to comment further on the Guinea situation.

On Thursday, Rio Tinto said it would be “inappropriate to comment further” on the Mozambique probe while the investigation continues. A representative for the SEC couldn’t immediately be reached for comment.

Rio acquired its Mozambique coal business in 2011 through its $3.7 billion takeover of Riversdale Mining Ltd., as coal prices were rocketing on ballooning demand from Asia and supply disruptions in major coal-producing countries. Riversdale projected Mozambique would become one of the world’s big coking-coal exporters.

But coal prices then fell as new mines planned during the boom moved into production.

In Mozambique, Rio Tinto had planned to ship the coal along the Zambezi River. That proved unworkable because of problems encountered dredging the river and securing the required government approvals. The coal’s high ash content also required costly processing, while the miner downgraded estimates on how much coal it could actually recover from the deposit.

When announcing the large write-down, Rio Tinto chairman Jan du Plessis described it as “unacceptable.” Doug Ritchie, who led the acquisition and integration of the Mozambique coal assets, also stepped down at that time.

It turned out to be a costly deal for Rio Tinto. In 2014, the company sold the Mozambique business, which included a majority stake in the Benga mine and other coal projects in the Tete province, to an Indian investment group for $50 million.

—Ian Walker contributed to this article.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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