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Rio Tinto faces US probe over $3bn coal writedowns

The US Securities and Exchange Commission is examining the timing of $3bn of impairment charges that Rio Tinto booked on a disastrous Mozambique coal deal, sources close to the company have confirmed.

The Anglo-Australian miner was already facing scrutiny from US regulators when it contacted law enforcement authorities this month about a questionable payment made to a consultant operating in Guinea.

The Mozambique investigation, first reported by the Australian Financial Review, deals a further blow to Rio, which is trying to defend its reputation as one of the best-managed mining companies. It will also heap further pressure on Jan du Plessis, its chairman.

Rio declined to comment.

Shares in Rio fell 1 per cent to A$60.40 when the Australian Securities Exchange opened on Tuesday morning. 

Regulators in the US, UK and Australia are deciding whether to investigate a payment of $10.5m Rio made to a consultant who helped the company secure rights to a giant iron deposit in Guinea.

The company reported the fee earlier this month following a review by an external law firm, and subsequently fired two senior executives.

The SEC investigation is separate to that inquiry and focuses on Riversdale Mining, a Brisbane-based miner that Rio purchased for $3.7bn in 2011 just as a decade-long commodity investment boom was coming to an end.

Two years after the deal closed, Rio booked more than $3bn of impairment charges that it blamed on the logistical challenges of transporting coal from the Tete province of Mozambique to the coastline 600km away. Rio also revised its estimates of recoverable coking coal, which is used in the production of steel, raising questions about due diligence.

The company subsequently sold the assets for $50m, closing a chapter on one of the most disastrous acquisitions in the miner’s history. The writedown ultimately cost former chief executive Tom Albanese his job.

It is unclear why the SEC decided to examine the impairment charges.

At the time the charges were taken, Rio was chaired by Mr du Plessis, who held the same position in 2011 when Rio approved a $10.5m payment to François Polge de Combret, a French consultant who helped the company secure rights to half the Simandou iron ore project in Guinea.

Rio reported that fee this month to law enforcement agencies in the US, UK and Australia but has yet to reveal further details. However, the Financial Times has established that Mr de Combret was also working as informal adviser to Guinea’s president, Alpha Conde, in 2011, raising questions about whether Rio broke anti-corruption laws.

Large investors have already been critical about the miner’s handling of the Guinea payments crisis, accusing it of failing to stand behind senior executives it sacked.

One of them, Alan Davies, who once ran the Simandou project, is threatening legal action. He claimed not to have been privy to Rio’s internal inquiry led by US law firm Kirkland & Ellis, nor to have seen any evidence to justify his sacking.

Additional reporting Jamie Smyth in Sydney

Via FT