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Rio faces new questions about giant Guinea project

Rio Tinto’s lawyers uncovered more than a year ago internal emails about a questionable $10.5m payment to a consultant, but the mining company did not alert law enforcement authorities and investors about the matter until last week.

The Anglo-Australian group said on November 9 it had notified authorities after discovering emails from 2011 that referred to the payment to the consultant, who helped head off a threat to Rio’s claim to the giant Simandou iron ore project in Guinea.

In the emails, seen by the Financial Times, Alan Davies, the executive in charge of Simandou, discusses with Tom Albanese, then chief executive, and Sam Walsh, then head of iron ore, paying a $10.5m fee to François Polge de Combret, a former top French banker and classmate of Guinea’s president.

Following an internal inquiry begun in August, Rio said last week it had referred the matter to law enforcement authorities in the UK, the US and Australia. The company now faces years of scrutiny and the risk of large fines if it is found to have broken anti-corruption laws.

Rio has suspended Mr Davies, the only one of the three executives in the email chain still at the company. He has not responded to requests for comment.

Rio said last week it discovered the emails in August, after they were anonymously posted online.

But two people with knowledge of the matter told the FT that the emails had been uncovered last year by lawyers working for the company on a legal dispute about the Simandou project.

The law firm, Quinn Emanuel, declined to comment. It reported to the department of Debra Valentine, the Rio executive in charge of legal and regulatory matters.

Ms Valentine had been due to retire next May but stepped down early following last week’s revelations. She could not be reached for comment.

Francois Polge de Combret

The dispute over Simandou dates back to 2008, when the Guinean dictator of the day stripped Rio of the rights to the northern half of the project and handed them to BSG Resources, the mining arm of Israeli diamond tycoon Beny Steinmetz’s family conglomerate. BSGR went on to agree a $2.5bn deal to bring in Vale of Brazil as its partner.

In 2011, Rio secured its claim to the remaining half of Simandou with a $700m payment to the then new government of President Alpha Condé — a deal which, the emails indicate, Mr de Combret helped to facilitate. The ex-Lazard banker declined to comment.

In 2014, an inquiry launched by the Condé government concluded that BSGR had won its rights to half of Simandou through a bribery scheme. The government cancelled those rights and has yet to reissue them.

Rio reacted in April 2014 by bringing a racketeering lawsuit in New York in which it claimed BSGR, Mr Steinmetz, Vale and others had conspired to steal its Simandou rights.

The case was thrown out on a technicality in November 2015 but not before the parties had embarked on discovery — the process whereby claimants and defendants exchange material ahead of a trial.

An October 2014 court filing by Vale’s lawyers specified the information it wanted Rio to hand over. One section demanded: “All Documents regarding or constituting communications between Rio Tinto and any Third Party relating to Rio Tinto’s rights to Simandou Blocks 1 and 2.”

This was a reference to the half of the deposit that had been taken from Rio and handed to BSGR.

The 2011 emails that triggered the internal inquiry by Rio in August appear to fall squarely within the scope of Vale’s request for disclosure.

For instance, Mr Davies writes in one of the emails that, thanks to Mr de Combret’s efforts, “there is also now a glimmer of possibility that we may be able to move ourselves into a useful position in relation to [blocks] 1 and 2”.

Sam Walsh © Bloomberg

People with knowledge of the matter said Rio’s lawyers came across the emails as they compiled documents to be disclosed in the discovery process.

It is unclear whether, after Quinn Emanuel found the emails, Ms Valentine’s department took any action, or contacted Mr Walsh, who in January 2013 had succeeded Mr Albanese as chief executive.

The FT has been unable to obtain comment from Mr Walsh, who stepped down as Rio chief executive in July. Mr Albanese has declined to comment.

Following Rio’s disclosures last week, Guinea’s government said it “had no knowledge, at the time in 2011, that Mr Polge de Combret acted in any capacity on behalf of … Rio Tinto”.

It added that it had “received no specific allegation of corruption” but that it would “follow any development in the self-reporting procedures initiated by Rio Tinto closely and will conduct all investigations that may be necessary to assist the relevant authorities with their mission”.

Jean-Sébastien Jacques, Rio’s current chief executive, told staff this week that the company did not take “lightly” a decision to contact regulators about the $10.5m payment to Mr de Combret. He added the company was taking “this situation very seriously”.

BSGR has always maintained it did nothing wrong in Guinea and that it was the victim of a plot by the government and its allies to confiscate its rights illegally. The company has seized on recent allegations of bribery against the Condé government in a separate legal case as well as Rio’s disclosures last week to argue that it is being vindicated.

Via FT