Finance

Rio Tinto faces FCA probe into $6.75bn Mongolian mine

Rio Tinto PLC updates

The UK’s financial watchdog is conducting a probe into Rio Tinto and its late-running $6.75bn underground copper project in Mongolia’s Gobi Desert.

The Financial Conduct Authority is investigating whether the Anglo-Australian company breached listing rules in disclosures about the value of Oyu Tolgoi in 2018 and 2019, according to people familiar with the situation.

Rio announced in July 2019 that the underground expansion of Oyu Tolgoi would require an additional $1.2bn-$1.9bn in capital and be 16 to 30 months late. It said difficult ground conditions meant it would have to rethink the project’s design and development schedule.

However, some investors and a former employee have claimed Rio knew the expansion of the copper mine was in trouble months before the problems were disclosed to investors.

At the time the delays were announced Rio’s chief executive was Jean-Sébastien Jacques, who stepped down last year following an investor backlash over the destruction of two ancient aboriginal rock shelters in Australia.

Rio declined to comment. It has previously said that it had “consistently complied” with its disclosure obligations in relation to the underground development at Oyu Tolgoi.

The FCA said it “couldn’t comment on individual firms”.

The FCA investigation adds to the $140bn company’s legal problems. The UK’s Serious Fraud Office launched an investigation in 2017 into a payment made by Rio to a consultant working on a controversial iron ore deposit in Guinea.

Rio has also been charged with fraud by US financial regulators and fined £27m by the FCA for inflating the value of coal assets in Mozambique.

It could face another fine if it has breached the FCA’s disclosure rules over Oyu Tolgoi.

The project is one of Rio’s most important growth assets. Once the underground expansion is complete it will be among the biggest copper mines in the world, capable of producing almost 500,000 tonnes of the metal a year.

The Oyu Tolgoi scheme has been beset by problems and disagreements with Ulan Bator. First production at the mine is expected in October 2022.

Rio has blamed challenging ground conditions and “geotechnical” issues for most of the setbacks in the underground development. However, its explanations have been challenged in a US court by US hedge fund Pentwater Capital Management.

In documents filed this year as part of a class-action lawsuit, PCM claimed senior executives at Rio and its Toronto-listed subsidiary Turquoise Hill Resources (TRQ) knew the expansion was in trouble months before the problems were disclosed to investors.

It also said the delay and cost overruns were largely the result of deficient “engineering, procurement, and construction” by Rio and other contractors on critical mine shafts.

Rio is seeking to have that case dismissed. It previously said the lawsuit was “without merit”.

The FCA investigation comes as an independent consulting group is set to publish the findings of a review into the cost overruns and delays at Oyu Tolgoi.

The review was requested by the government of Mongolia, which owns 34 per cent of the project. The remaining 66 per cent is owned by TRQ. Its share price has more than halved since the overruns were announced.

“We anticipate to receive a final report of the ongoing independent review on the cost overruns and schedule delays of the Oyu Tolgoi underground expansion in early August,” Mongolia’s government said in a statement.

“We hope that the final report will clarify many issues surrounding the project and various allegations and will give a more transparent and full view over what happened with the project in the past few years.”

Rio reports results on Wednesday and is expected to announce the highest half-year profits in its history on the back of booming prices for iron ore, its key commodity. 

Additional reporting by Kate Beioley

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