Risk & Compliance

SEC Probing Rio Tinto Over Coal Deal Writedown

The mining company confirms the investigation of the $3 billion charge it took after its acquisition of assets in Mozambique went bad.
Matthew HellerDecember 2, 2016
SEC Probing Rio Tinto Over Coal Deal Writedown

Anglo-Australian mining company Rio Tinto has confirmed that the U.S. Securities and Exchange Commission is investigating a $3 billion writedown it took on an ill-fated Mozambique coal deal.

The Financial Times said the investigation, which was first reported on Monday by the Australian Financial Review, “deals a further blow to Rio” as it faces regulatory scrutiny over a $10.5 million payment to a French consultant who helped the company secure rights to a giant iron ore deposit in Guinea.

In a statement to the Australian Stock Exchange on Thursday, Rio said it was cooperating with the SEC probe. “As the SEC investigation, which started in April 2013, remains ongoing, it would be inappropriate to comment further at this time,” the statement said.

The inquiry relates to Riversdale Mining, an Australia-based miner that Rio purchased for $3.7 billion in 2011 as coal prices were soaring 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,” The Wall Street Journal said. “But coal prices then fell as new mines planned during the boom moved into production.”

In 2013, Rio booked more than $3 billion of impairment charges that it blamed on the logistical challenges of transporting coal from the Tete province of Mozambique to the coastline 375 miles away. “The company subsequently sold the assets [to an Indian investment group] for $50 million, closing a chapter on one of the most disastrous acquisitions in the miner’s history,” the FT said.

“Sources in Britain say the SEC has focused particularly on the pathway the global miner took to accounting for the impairments,” the Australian Financial Review reported.

The payment to French consultant François Polge de Combret is being investigated by the SEC, the U.K. Serious Fraud Office, and the Australian Securities and Investment Commission. “I take integrity and our code of conduct very, very seriously,” Rio Chief Executive Jean-Sébastien Jacques, who has led the company since July, said last week.