A $US3 billion write down in the value of a coal mine in Mozambique was among the projects which led to the resignation of Rio Tinto CEO Tom Albanese in 2013 and is a key issue in a fraud case just launched in the US.
In January 2013, Rio Tinto announced that it expected to recognise impairments of $US14 billion after tax in its 2012 full year results.
Among these impairments was about $US3 billion relating to the Rio Tinto coal in Mozambique for which the company paid $US3.69 billion in 2011. The write-down came less than 18 months after the purchase.
It is this project which is central to US authorities charging Rio Tinto, Albanese and former CFO Guy Elliott with fraud.
Albanese and Elliott, along with the company, have denied there is any substance to the allegations and say they are confident they will be cleared.
Rio Tinto chairman Jan du Plessis said at the time of the impairment charge: “The Rio Tinto Board fully acknowledges that a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable.”
Rio found that the development of infrastructure to support the coal assets in Mozambique was more challenging than anticipated.
The company tried to transport coal by barge along the Zambezi River, but this option couldn’t get government approvals.
Rio said the infrastructure constraints, combined with a downward revision to estimates of recoverable coking coal, led to a reassessment of the overall scale and ramp up schedule.
The company announced, in the same statement as the impairments, that CEO Tom Albanese, who had spent 30 years at Rio, was stepping down as by mutual agreement with the Rio Tinto board.
Doug Ritchie, who led the acquisition and integration of the Mozambique coal assets in his previous role as Energy chief executive, also left the company.
Neither did well with separation packages. There was no lump sum payment, no annual short-term performance bonus for 2012 or 2013 and no long-term share award for 2013. All outstanding entitlements under Rio Tinto’s long-term incentive plans lapsed and their outstanding deferred bonus share entitlements earned in previous years forfeited.
However, the chairman said: “I would like to pay tribute to Tom for his considerable contribution to Rio Tinto over more than 30 years of service and for his integrity and dedication to the company. I would also like to thank Doug for his 27 years of service to the group and particularly for his invaluable work in developing our relationships in China. I wish them both well for the future.”
Sam Walsh, who was then iron ore chief executive, became CEO.