October 31, 2020

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US regulator examines Rio Tinto whistleblower claims over Oyu Tolgoi

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US regulators are examining claims from a whistleblower that Rio Tinto was aware of problems at a huge copper development in Mongolia’s Gobi Desert months before the global miner revealed the project was running late and over budget.

The Securities and Exchange Commission is probing the allegations made by Richard Bowley, a British national who worked for Rio’s copper business in Mongolia between 2017 and 2019, according to people with knowledge of the situation.

They said the SEC had not decided whether to a launch an investigation. The US financial watchdog charged Rio in 2017 with fraud for inflating the value of coal assets in Mozambique, an allegation the company has denied and said it will fight.

The SEC and Mr Bowley declined to comment.

The underground expansion of the Oyu Tolgoi mine is one of Rio’s most important projects and will increase its production of copper, at a time when the shift to renewable energy is driving demand for the metal for use in electric vehicles and wind turbines.

However, the development has been a continued source of headache for the company and chief executive Jean-Sébastien Jacques, who is under fire in Australia after Rio blew up a sacred 46,000-year-old Aboriginal rock shelter to make way for a mine expansion.

Mr Bowley, who is suing Rio for unfair dismissal, said he first alerted Rio executives to issues at Oyu Tolgoi in February 2018, according to documents filed with a UK Employment Tribunal earlier this year.

Mr Bowley, a former head of strategic projects in Mongolia, said he continued to warn senior executives of problems at the project until January 2019, when Rio asked its lawyers Baker McKenzie to investigate the allegations.

In March 2019, Mr Bowley’s contract was terminated with “immediate effect”. Four months later, Rio revealed the project was between $1.2bn and $1.9bn over budget and running 16 to 30 months behind schedule.

The Financial Times has also learnt that Rio was informed of problems at Oyu Tolgoi by a contractor early in 2019. Internal reports issued to Rio by Jacobs Engineering Group show how a series of problems with Shaft 2, a critical piece of infrastructure, had affected the project.

Shaft 2 was part of the underground expansion project needed to carry men, material and equipment to the copper ore body 1.3km below the Gobi Desert and to remove waste material.

In one of the updates from February 2019 — and seen by the FT — Jacobs said damage to a power cable and rope had resulted in a “shut down” of activities in Shaft 2, “which are impacting an already critical schedule”.

In a statement, Rio said it was “not aware of any investigation related to OT disclosure by the SEC” and had “consistently complied with its disclosure obligations” in relation to the underground development project. It added: “Any claim otherwise is completely unfounded.”

Rio also said it had flagged problems with Shaft 2 in October 2018 in an operations review. In that update, Rio warned investors that ground conditions and shaft sinking challenges were “expected to result in a revised ramp-up schedule to sustainable first production” at the underground mine.

2020-09-06 09:29:50

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