Rio’s Tinto 2011 Annual Report shows the company initially paid $US3.69 billion for the Mozambique coal assets that are at the centre of fraud allegations by the US Securities and Exchange Commission.
The world’s second-biggest mining company and its former CEO, Tom Albanese, are facing fraud charges which focus on the write-down of the Mozambique assets.
The transaction was comprised of a $2.191 billion cash payment in April 2011, which gave Rio a 52.6% controlling interest in Riversdale Mining Ltd.
The name of the entity was subsequently changed to Rio Tinto Coal Mozambique (RTCM). Rio purchased the remaining 47.4% on August 1 in a $US1.977 billion cash transaction.
The company included $530 million of goodwill on the acquisistion, related to the accounting treatment of tax as part of the inclusion of RTCM in Rio’s consolidated financial statements.
This table from Rio’s 2011 financials shows a breakdown of Rio’s initial assessment of fair value.
“Fair values recognised on acquisition are provisional and will be subject to further review during the 12 months from the acquisition date,” the company said.
One year later, in the 2012 Annual Report, former Rio CEO Tom Albanese was out and Rio reported a huge write-down in the value of the asset.
Per the company’s 2012 financials (emphasis ours):
RTCM holds mining and exploration licences in the Moatize Basin in the Tete province of Mozambique. The Benga Mine was officially opened in May 2012 with first coal exported in June 2012. An impairment charge of US$2.86 billion post-tax was recognised relating to Energy’s coal business in Mozambique.
The development of infrastructure in Mozambique to support the undeveloped coal asset is more challenging than initially anticipated which, combined with a downward revision to estimates of recoverable coking coal volumes, has led to a reassessment of the overall scale and ramp up schedule of RTCM and consequently to the assessment of its fair value less costs to sell (FVLCS).
So over the course of around 18 months, Rio was forced to write down around 83% of its initial investment.
A further $US470 million was written off in February 2014, and in August 2014 Rio completed a sale of the assets for just $US50 million.