The Financial Conduct Authority has fined Rio Tinto plc £27,385,400 for breaching Disclosure and Transparency Rules.
Following an investigation, the FCA found that Rio Tinto breached the Disclosure Rules by failing to carry out an impairment test and 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$3.7 billion 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. Rio Tinto’s financial reporting was therefore 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. For this reason, and wrongly, Rio Tinto decided it was appropriate to continue to value the mining assets at the acquisition price.
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. The FCA has therefore imposed a financial penalty on Rio Tinto in the amount of £27,385,400.