Tag Archives: John Cherry

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.