Tag Archives: fraud

Mozambique, Michigan, and the SEC Complaint Against Rio Tinto

Chinde_Rusting_boats

Rusting boats at the port of Chinde, where Rio Tinto proposed to barge Riversdale coal via the Zambezi River.

Yesterday, the Securities and Exchange Commission brought a complaint in New York City against Rio Tinto, charging Tom Albanese, the former CEO of Rio Tinto, and Guy Elliott, his Chief Financial Officer, with fraud. According to the complaint, Albanese and Elliott actively misled the Rio Tinto board, audit committee, auditors, and the investing public about their acquisition of the Riversdale coal business in Mozambique in 2011.

The fraud that Albanese and Elliott are accused of perpetrating looks awfully familiar to those who have followed the development of Eagle Mine and the controversy over County Road 595. Having noticed the parallel between Mozambique and Michigan back in 2013, when Tom Albanese was forced to step down, I now have to wonder whether prosecutors will take the company’s representations around the Eagle Mine into account when building their case.

In Mozambique, they told investors, coal would be transported by barge to the Indian Ocean port of Chinde. Although their technical advisors “highlighted the ‘showstopping’ risks” associated with the barging proposals before the acquisition, Albanese and Elliott blundered recklessly ahead. Then eight months later, the Mozambique government denied Rio Tinto a permit to transport the coal by barge down the Zambezi River. Suddenly, the coal business they had acquired for $3.7 billion appeared to be worth a negative $680 million. According to the SEC’s complaint, Albanese and Elliott “concealed and glossed over” the fact that they had no viable haul route for the 30 million tons per year they projected in their business plans, and misled investors as they raised $5.5 billion in US debt offerings.

In that very same period, Rio Tinto was also promoting Eagle Mine to investors and promising economic renewal in the Upper Peninsula, though they had not yet secured a transportation route — a haul route — for Eagle’s sulfide ore. In Michigan, it appears, the company took the same cavalier attitude toward planning and risk that the SEC complaint says got them into trouble in Mozambique.

Way back in 2005, John Cherry, who was then a Kennecott Minerals project manager and is now President and CEO of the Polymet project in Minnesota, characterized Eagle as a “direct ship” operation, “meaning that the rock would not be processed on site, thereby avoiding the storage of highly toxic debris left over, called tailings.” Presumably this is what Michigan DEQ’s Robert McCann had in mind in 2007, when he told The Blade that Kennecott’s permit “would require them to keep the ores underground, put them in covered rail cars, and ship them to Ontario for processing”; the Marquette Monthly told roughly the same story that year, only now there were trucks in the picture: “ore would be transported by truck and rail to a processing site in Ontario.” This seems to have been nothing more than a cover story.

Everything changed in 2008, when Rio Tinto bought the Humboldt Mill. Those permit requirements the DEQ’s McCann touted back in 2005? They were quickly abandoned. Covered rail cars come into the picture only after the ore is crushed, ground into a slurry, floated and rendered into concentrate at Humboldt Mill. A glossy 2010 company publication promoting Eagle Mine includes not a single word about how Rio Tinto and Kennecott plan to travel the 30 kilometers from mine to mill: “Happily, processing of the nickel and copper can take place in Humboldt, around 30 kilometres [sic] away, at a previously abandoned iron ore plant.” By 2011, the company had “considered more than a half dozen transportation routes” from mine to mill, according to a Marquette Mining Journal article by John Pepin published in February of that year, but they still had no viable haul route.

A good prosecutor with a rigorous and thorough discovery process would probably be able to determine whether the evasions and misrepresentations perpetuated on the public over the Eagle Mine haul route also amounted to fraud, or were part of a larger pattern of deliberately misleading statements. It’s clear Rio Tinto never came clean — and perhaps never really had a firm plan — on mine to mill transport at Eagle before it sold the works to Lundin Mining in June of 2013 and decamped. As long as regulators in Michigan continued to be more accommodating than those in Mozambique, the company seems to have been content to let the people of Marquette County fight out the haul route issue among themselves.

The Big Drain on the Yellow Dog Plains

One of the more compelling themes of Elizabeth Kolbert’s The Sixth Extinction has to do with what she calls our “Faustian restlessness,” the irrepressible, ambitious intelligence that made it possible for human beings to venture forth and multiply in the first place, and which now appears likely to be our undoing. We have launched a thousand kinds of ships, built bridges and towers and televisions, blasted mountaintops, traveled to the North Pole, dammed rivers, bored tunnels, felled whole forests to ease our way and launched rockets to the moon. Brilliant engineers, intrepid voyagers, seekers and conquerors, we’ve remade the world in our image and likeness, or at least to our liking, and in the process significantly rearranged and unalterably damaged the biosphere. In the course of our short time here on earth, we’ve managed to paint our way into what looks very much like a suicidal corner.

“With the capacity to represent the world in signs and symbols comes the capacity to change it,” she writes, “which…is also the capacity to destroy it.”

Kolbert doesn’t mention mining except in passing — and then only twice, both times to talk about mining (along with logging and other extractive industries) as a threat to biodiversity. But I was reminded of her discussion of human restlessness and recklessness in The Sixth Extinction as I read mining engineer Jack Parker’s Letter to The Editor in the April 21st Marquette Mining Journal.

Parker’s “basic contention” when he first studied the Eagle Mine in 2006 is one he still maintains: “the design data for the mine had been fudged, and that can be proved easily, provided that the regulating agency and their courts do not collude in the fraud.” Unfortunately, he charges, to date the Michigan DEQ and courts have so colluded. For reasons that are not too hard to surmise, the mining companies, from Rio Tinto to Kennecott to Lundin, have “studiously ignored” his finding: it is simply unsafe to mine at Eagle. “The prognosis for the Eagle, if mined as planned, is for sudden, unexpected collapse and flooding.”

Parker has been the Cassandra of the Eagle Mine for nearly a decade. The successive owners of the Eagle Mine have tried to refute him with their own geological data, but the current plan “to handle the situation by mining upward, assessing conditions as they go, and stopping if conditions so indicate” is tantamount to an admission of concern that Parker may be right. Unfortunately, he writes, they “refuse to learn from case histories” like the overnight collapse of an 1800 foot thick crown pillar at the Athens mine near Negaunee in 1932. As Parker describes it, the plan to mitigate risk at Eagle amounts to nothing more than a whole lot of lies and denial mixed with reckless determination.

In other words, even if the bid for Eagle Mine’s nickel is not the con game Parker alleges it is, it may turn out to be a Faustian bargain of the kind Kolbert describes — a hubristic feat, a  confidently-engineered ecological disaster.

A collapse at Eagle Mine of the sort Parker predicts from his study of the area’s geology would be far more serious than the Athens cave-in, even if there were no worker injuries or fatalities, and even more disastrous than the big slide at Bingham Canyon. One big reason is water. A sentence in Parker’s letter drives this point home: “A sudden collapse of the mine structure would drain the wetlands, the aquifers and the Salmon Trout River very, very quickly.”

Take a moment to picture that.

The big drain on the Yellow Dog Plains would wreck the place for a long time to come.

It would extinguish life in the Salmon Trout River and the surrounding watershed. It would kill indiscriminately. Among its victims would be the Coaster brook trout, whose numbers on this side of the Canadian border have dwindled into the mere hundreds.

The contours of the Coaster story are hauntingly familiar: it could have been lifted right out of The Sixth Extinction. Overfishing began around the 1840s, when European settlers first arrived in the region. Subsistence fishing soon gave way to sportfishing. Teddy Roosevelt’s uncle R.B. fished for brook trout in the 1860s, and in his 1865 monograph Superior Fishing he recommends putting just “a pinch of salt” in the brook trout’s mouth, “roll him up in a few folds of newspaper, dip the swaddled darling in the water, light a fire, and place him in the embers. When the paper chars, take him out and eat him at once, rejecting the entrails.”

But even before R. B. Roosevelt was spitting trout entrails, as early as the 1850s, the habitat of the Coaster brook trout was heading for trouble. As Donald R. Schreiner of the Minnesota DNR et al. note in an article in the North American Journal of Fisheries Management, “logging and pollution from industry in rapidly expanding communities” had already begun “degrading stream habitat and further reducing brook trout abundance.” Mining was especially destructive. Schreiner and his colleagues cite the work of Charles Kerfoot (who appears briefly at the end of my film 1913 Massacre to describe the toxic legacy of the last round of Lake Superior mining):  “In the 1900s, mining activity impacted thousands of acres in the Lake Superior watershed and discharged more than 1 [billion*] tons of tailings along Lake Superior shorelines….Many streams have been impounded over the last 150 years, altering the hydrology and affecting brook trout migration and spawning and general habitat availability.”

Of the four or five hundred adult Coaster brook trout left in U.S. waters, about half swim and breed in the Salmon Trout River; most of the rest live in freshwater streams on nearby Isle Royale. (There are, however, reports of Coasters in the Baptism River and in other parts of northern Minnesota; at the moment, while the jury is still out on the Polymet project, it’s unclear whether those areas will be spared the coming mining boom). Despite their rapidly declining population, in 2009 the US Fish and Wildlife service denied a petition by the Sierra Club and the Huron Mountain Club to have the Coaster declared an endangered species. It came down to a technical discussion of whether the potamodromous (or fresh-water migrating) Coaster met the “distinct population segment” provisions of the 1973 Endangered Species Act. The Grand Portage Band of Lake Superior Chippewa is trying to establish a self-sustaining population of Coasters in northern Wisconsin, and a Minneapolis-based group called the Greater Lake Superior Foundation has set up and funded a Coaster Brook Trout Research Unit; but it’s unclear that these well-meaning efforts could make up for the devastation of the Salmon Trout River.

Parker has inquired about insurance in the event of a big collapse, but, he writes, “I haven’t heard from the insurance people yet”; and I have yet to find anything like a disaster-mitigation plan for the Yellow Dog Plains.