Outgoing Rio Tinto boss Jean-Sebastien Jacques named in class action suit
Both Rio and Jean-Sebastien Jacques have been named in a case alleging they misled investors over cost blowouts in Mongolia.
Outgoing Rio Tinto boss Jean Sebastien Jacques faces fresh problems as the Rio board searches for a successor, with both the company and its chief executive facing a class-action suit in the US alleging they made “materially false and misleading statements” about cost blowouts at the Oyu Tolgoi mine in Mongolia.
The class-action lawsuit was filed in the US earlier this week by shareholders of Rio’s partner in Oyu Tolgoi, Turquoise Hill, and names Mr Jacques and Rio copper boss Arnaud Soirat as well as other senior executives of Turquoise Hill..
It alleges the companies failed to disclose troubles at Oyu Tolgoi that have led to a $US1.9bn blowout in the cost of the underground expansion of the mine, and delays in its construction of about two years.
The suit, on behalf of shareholders who bought Turquoise Hill shares between July 2018 and July 2019, accuses Rio and Turquoise Hill of concealing emerging problems with the $US7bn underground development of Oyu Tolgoi.
It says the two companies consistently told the market the project was on track, in both time and budget, during the period despite knowing there were significant issues emerging from technical work on its development.
Oyu Tolgoi’s underground development was originally scheduled to begin delivering ore by 2021, at a cost of about $US5.3bn. Rio now says it should enter production in late 2022 or early 2023 and cost $US6.6bn to $US7.1bn.
Rio said on Friday the suit is “without merit”.
The news comes as shipments from Rio’s flagship Pilbara iron ore operations sank in the September quarter as the company dealt with the fallout from the destruction of 46,000 year old heritage sites at Juukan Gorge, and conducted major maintenance on its Cape Lambert shipping berths.
Rio shipped 82.1 million tonnes of iron ore in the period, down 5 per cent against the June quarter, and down the same amount from the September quarter of 2019.
Its mines produced 86.4 million tonnes, up 4 per cent from the June period, but down slightly from the same time in 2019.
Despite slowing shipments, Rio maintained its annual production guidance at 324 to 334 million tonnes, with unit cost guidance unchanged at $US14 to $US15 a tonne.
The destruction of Juukan Gorge has already cost Mr Jacques his job, along with iron ore boss Chris Salisbury and corporate affairs chief Simone Niven and massively damaged the company’s reputation.
As Mr Jacques prepares to face a Parliamentary inquiry into the destruction of Juukan on Friday, Rio said it could not quantify the impact of proposed changes to heritage laws on its operations and development plans in the Pilbara.
“Future potential operational and mine development impacts from the reform of the Aboriginal Heritage Act 1972 (WA) and changes to our heritage approach remain unknown at this point in time. We are consulting with Traditional Owners and are working through scenarios with a broad range of options available given the flexibility in our Pilbara network,” the company said.
But the reputational damage appears set to cost the company time in its push to develop a new copper district in WA, with Rio playing down earlier talk it may have a new mine operating at its Winu project in the east Pilbara by 2023.
“Engagement with Traditional Owners has resumed following easing of COVID-19 travel restrictions in Western Australia. This engagement is likely to take longer than originally forecast, and hence may have an impact on first targeted production of 2023,” the company said.
While Rio said the outlook for its iron ore division was good, as stimulus measures in China pushed up demand for key commodities, the company warned fresh outbreaks of COVID-19 across Europe and Asia threaten the world’s return to economic growth.
“Global economic activity in the third quarter was generally strong, helping to sustain optimism for a widespread recovery in 2021. However, recent high-frequency data suggests that the rate of recovery in growth is slowing in most economies, with pent-up demand dissipating, and the rise of renewed lockdowns threatening recovery,” the company said.
Rio shares were down 58c to $95.69 by midday.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout