FineOct 18 2017

FCA fines Rio Tinto for misleading investors about problems

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FCA fines Rio Tinto for misleading investors about problems

Rio Tinto has been fined £27m by the Financial Conduct Authority for breaching disclosure and transparency rules.

The FCA issued the hefty penalty following its investigation, which found that the firm had failed to carry out an impairment test.

It also failed to recognise an impairment loss on the value of mining assets based in the Republic of Mozambique, which it acquired in August 2011 for US$3.7bn, when publishing its 2012 interim results.

Had Rio Tinto complied with its obligation to carry out the test, a material impairment would have been required to have been disclosed at the time of its 2012 half year financial reporting. 

Mark Steward, executive director of enforcement and market oversight, said: "The UK listing regime requires listed companies to adhere to high standards of disclosure and transparency.

"Rio Tinto should have been aware of its obligation to carry out the impairment test and the resulting material impairment should have been reported to the market at its half year results in 2012.

"Reflecting the size of the company, this is the largest fine imposed to date by the FCA for a breach of rules relating to a firm's official listing and demonstrates how vitally important high standards of disclosure and transparency are to ensuring our markets function fairly and effectively."

The FCA said Rio Tinto's financial reporting was inaccurate and misleading.  

This continued until 17 January 2013 when Rio Tinto announced an impairment of the Mozambique assets, writing off approximately 80 per cent of the value of the investment in the Mozambique mine.

When Rio Tinto acquired the Mozambique mine, its valuation was based on a plan to move rapidly into coal production.  This plan assumed Rio Tinto would be able to barge coal from the mines down the Zambezi River to the coast for export.

Prior to half year 2012, it became apparent that Rio Tinto would not be able to barge the coal to the coast, as planned and that higher cost alternatives would be needed to transport coal for export.

Rio Tinto began to carry out financial modelling of its mining business which indicated that the value of the Mozambique assets, based on the best information available at that time, was negative.

Despite the modelling results, Rio Tinto decided that it would not carry out an impairment test, as required by international accounting standards, to assess whether an impairment was required to be recorded in its financial reporting of its 2012 half year interim results.

Instead, Rio Tinto decided there was a lack of clarity around how it would develop the mines which made it premature to revalue these assets.  

Rio Tinto has agreed to settle at an early stage in the investigation and therefore qualified for a 30 per cent reduction in penalty. Were it not for this discount, the FCA would have imposed a financial penalty of £39,122,007 on Rio Tinto.

A statement by Rio Tinto confirmed it has reached a settlement with the FCA. It added: “The FCA made no findings of fraud, or of any systemic or widespread failure by Rio Tinto. The case is now closed.”