Executives caught in Rio Tinto’s Simandou tsunami

When Rio Tinto’s board met in London this week there was just one item on the agenda. The meeting took 10 hours.

Rio Tinto’s Simandou mine project in Guinea.

When Rio Tinto’s battle-hardened corporate board made its way to London this week from various corners of the globe for a special meeting, there was just one item on the agenda.

But the meeting still went for 10 hours.

The corporate tsunami caused by the eventual board decision to terminate the contracts of executive committee members Alan Davies and Debra Valentine over a growing corruption scandal around the Simandou iron ore project in Guinea broke with full force in subsequent days.

Brisbane-born Mr Davies, who is known to have long had a prickly relationship with new chief executive Jean-Sebastien Jacques, has declared war on Rio over his sacking from a $3.5 million-a-year job and lost bonuses of up to $10m.

GRAPHIC:Rio woes

At the same time, the Guinean government, already angry at Rio over the miner’s recent decision to walk away from the Simandou project, has said it had no idea one of its advisers, Francois de Combret, was also being paid by Rio and has demanded more information around what Rio has uncovered. So it is again an unhappy time for the Rio board and chairman Jan du Plessis.

Since Mr du Plessis became chairman in 2009, the board has dealt with the fallout from the disastrous Alcan acquisition and a subsequent rescue deal that nearly gave China big stakes in the company’s best assets, the jailing of Australian Stern Hu and three other employees in China, and the 2013 dismissal of chief executive Tom Albanese and coal boss Doug Ritchie over a $4 billion Mozambique coal ­acquisition that was later sold for $50m.

Now, two more senior executives have been sacked and anti-corruption authorities in the US and Britain have been invited to investigate a 2011 payment made to a consultant with the full knowledge of then CEO Mr Albanese and iron ore boss Sam Walsh.

Mr Walsh became chief executive when Mr Albanese departed and was succeeded by Rio’s copper chief, Mr Jacques, in July.

Monday’s Rio board meeting was called to discuss the $US10.5m payment to Mr de Combret, which had surfaced in August when a May 2011 email exchange between Mr Davies, then head of the Simandou project, Mr Walsh and Mr Albanese was posted on the internet by persons unknown.

In the emails, Mr Davies says paying the fee to Mr de Combret for his “very unique and unreplaceable services and closeness to the President” was a “very necessary step” for moving the company’s relationship with the government to a stable footing.

Mr Walsh then queries whether half the $US10.5m can be paid upfront and half later, while Mr Albanese says to be careful of “the optics to the government of Guinea” of such a move.

The first time that Rio directors discussed the emails was at a regular board meeting in September, when it was decided there was a serious issue with both the emails and what the company’s subsequent internal investigations had thrown up.

So one of the world’s top corporate law firms, Kirkland & Ellis, which has a stable of experienced former US Department of Justice and British Serious Fraud Office lawyers, was appointed to investigate.

What the 11-member Rio board, which includes Mr Jacques and chief financial officer Chris Lynch, mulled over for 10 hours on Monday was largely what came out of the Kirkland & Ellis investigation.

The fact it was deliberated on for so long indicates there was much more being discussed than the email exchange and much more to the story than can be gleaned by what has been made public.

The lawyers had gone through mountains of Rio data investigating what had happened and reported back preliminary findings that had already resulted in the Justice Department, Fraud Office and Australian Federal Police being notified.

“The board concluded that the executives failed to maintain the standards expected of them under our global code of conduct,” Rio said on Thursday, announcing it had terminated the contracts of now energy and minerals chief Davies and legal head Valentine and that they would lose their bonuses.

The specifics of what they have done to deserve termination have not been revealed, and an angry Mr Davies says he had not been made aware of the grounds for his dismissal.

“I have not been privy to Rio Tinto’s internal investigation report, nor have I had any evidence of the reasons for my termination of my employment given,” he said in a statement made just an hour after Rio’s announcement.

“Rio Tinto has made no effort to abide by due process or to respect my rights as an employee and it has given me no opportunity to answer any allegations. This treatment of me and my past and recent colleagues is totally at variance with the values and behaviours of the company to which I have devoted my professional life.”

What the investigation may have found is baffling all those looking at it from the outside.

Compliance experts say there are red flags all over the emails that have been made public, including a lack of any discussion of governance and anti-corruption issues. But sources close to the executives say a shortlist of potential consultants, including former British prime minister Tony Blair, was considered by a high-level executive committee before selecting Mr de Combret.

Also, the company is a renowned stickler for protocol around corruption-sensitive issues and those who have worked for Rio in Guinea say corruption concerns are front and centre of everything that is done in the West African country, which ranks 139th of 168 countries in Transparency International’s corruption perceptions index.

Guinea claims that it did not know that Mr de Combret, a French investment banker who studied with Guinean president Alpha Conde, was being paid by Rio. “Mr de Combret was at the time acting in a capacity that would have given him access to highly confidential information,” Guinea’s Minister of Mines and Geology, Abdoulaye Magassouba, said yesterday.

“It raises both legal and ethical concerns if, as media reports suggest, Mr de Combret was passing on privileged information in return for large amounts of money.”

Mr de Combret, a former Lazard managing director, could not be contacted and The Weekend Australian is unaware of any media reports suggesting he was passing on privileged information.

An authorless 2013 Guinea analysis that surfaced in an arbitration hearing at the World Bank’s International Centre for Settlement of Investment Disputes says Mr de Combret advised the Guinea government on a $US700m “settlement” payment Rio made to Guinea in 2011 to hang on to the Simandou tenements after delays in developing it.

This sits oddly with Mr ­Davies’ 2011 email in which he says the $US10.5m paid to Mr de Combret was “a fee for services” for Rio securing the $US700m payment deal.

The Guinea government has for years been unhappy with Rio’s progress on Simandou, probably the world’s biggest and best undeveloped iron ore deposit, at least from a geological point of view.

Rio’s reluctance to develop the project was confirmed on October 28 this year when it said it would hand its stake in the project to its partner Chinalco, with the prospect of a $US1bn payment if it is developed. While the announcement was made after Rio became aware of the emails, it is understood the company had been looking for a way to exit Simandou for more than a year.

Next week, more light could be shed on the situation. Mr Walsh is yet to comment on the issue but is due to speak in Perth on Tuesday at the CPA Congress.

And Mr Jacques is set to face investors in Sydney on Thursday and will present at the Melbourne Mining Club on Friday.