Rio Tinto slapped with largest-ever fine from FCA for failing to write down multi-billion dollar assets

 
Oliver Gill
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A large mine truck dumps a symbolic load
Rio Tinto's problems started when it realised it was unable to barge coal down one of Mozambique's largest rivers (Source: Getty)

The UK's top financial regulator this evening slapped mining behemoth Rio Tinto with a £27m fine for failing to write down the value of its Mozambique mines.

The Financial Conduct Authority (FCA) doled out the penalty for breaching disclosure and transparency rules. It is the largest-ever fine for such a breach and almost double the previous highest fine for similar failings – £14m levied on Prudential in March 2013.

The biggest fine ever handed out by the FCA for any misdemeanour was a £284m penalty imposed on Barclays in May 2015.

The FCA said the error meant Rio Tinto's half-year 2012 financial report was "inaccurate and misleading".

The penalty was reduced from over £39m after Rio Tinto agreed to settle at an early stage in the investigation.

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

"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.

He continued:

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 mining giant said: “The FCA made no findings of fraud, or of any systemic or widespread failure by Rio Tinto.”

Read more: Rio Tinto digs up $2.5bn share buyback

What happened?

Rio Tinto bought Mozambique mines for $3.7bn (£2.8bn) in August 2011. It planned to move into coal production and assumed that it would be able to barge coal from the mines down the Zambezi River to the coast for export.

Prior to completing its half-year accounts in 2012, the FCA said it had become apparent that Rio Tinto would not be able to barge the coal to the coast and that higher cost alternatives would be needed to transport coal for export. The miner put the additional costs into its financial models, which indicated the value of the mines should be written down.

Nevertheless, Rio Tinto decided not to impair the assets as mandated by accounting rules due to a "lack of clarity around how it would develop the mines which made it premature to revalue these assets".

The City regulator concluded in today's statement: "The FCA considers that this demonstrated a serious lack of judgement. There were indicators of impairment for the Mozambique assets which meant that Rio Tinto was required to carry out an impairment test."

Recent large FCA fines for "breaching disclosure and transparency rules"

Cenkos (August 2016) – sponsor firm fined £530,000 for breach of Listing Rules relating to sponsors.
Co-op Bank (August 2015) – public censure for breach of Listing Rules (and Principle 11) relating to publication of misleading information in its annual report about its capital position. The failings merited a substantial financial penalty but the bank’s difficult financial position at the time was a factor in our deciding to issue a public censure rather than levy a penalty.
Asia Resource Minerals (formerly Bumi plc) (June 2015) – fine of £4.6m for breaches of listing rules and DTRs concerning reporting of related party transactions.
Prudential plc (March 2013) – fine of £14m for breach of LP6 for failing to deal with us in an open and co-operative way regarding a proposed takeover.
Lamprell (March 2013) – fine of £2.4m for breaches of the DTRs and Listing Rules relating to failure to inform the market in a timely fashion of critical corporate information.

Read more: It's official: Rio Tinto has sold its Australian coal assets for $2.69bn

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