Category
- Agriculture
- Automobiles and Machinery
- Bank, non banking financing, investment
- Blasting
- Construction
- Consumables
- Education
- Energy
- Engineer , Architecture and Geodesy
- Finance, Audit,Accounting and Brokerage
- Food
- Foreign Trade
- Geology Exploration
- Health
- Information Technology
- Insurance
- Labor Safety
- Legal and Business consulting
- Lighting
- Mining equipment
- Mining Services
- Other product and service
- Road
- Sewing and textile products
- Transportations
- Travel
Events
Dirty dozen accuse Rio of covering up extent of Mongolian blowout www.afr.com
Dangerously defective Chinese steel, incompetent engineering and poor procurement have been cited by multiple former workers on Rio Tinto’s troubled Mongolian copper project as contributing to cost and schedule blowouts that workers say were understood by Rio management months before investors were told.
The explosive testimony from 12 individuals who worked for Rio or its contractors on the $US6.75 billion Oyu Tolgoi project comes as Rio’s new copper boss Bold Baatar holds crucial talks with the Mongolian government over the future of Rio’s biggest and most important growth project.
A 158-page claim filed in a US court expands significantly upon the initial class action claim lodged in October, which was built upon evidence provided by former Oyu Tolgoi worker Richard Bowley and much of which had already been made public in The Australian Financial Review in November 2019.
While the initial claim accused Rio of being too slow to tell investors of the cost and schedule blowouts, the amended claim also accuses Rio of concealing the true cause of the delays, which Rio had largely blamed upon the realisation that geology at Oyu Tolgoi was weaker and less contiguous than first thought.
Oyu Tolgoi’s weak geology had been well known on the project since at least 2012, and the claim lists one former employee who worked at Oyu Tolgoi between 2013 and 2019 as saying it was “pure horseshit” to suggest the geology was the major cause of the blowouts.
“The project was being delayed because of engineering and execution. There may have been some pockets of bad ground, but that’s expected in any mine,” the former employee, anonymously described as a “top manager” at Rio’s shaft contractor Red Path, was quoted as saying in the amended claim.
A second Red Path project manager said the steel required for the main shaft at the underground mine was “consistently sub par, had structural defects and issues with fabrication, including steel parts not being made to specifications, had poor joints, and was otherwise unusable and dangerous”.
It was a disaster. It was a complete joke.
— Former employee at Oyu Tolgoi
Steel was crucial for safe delivery of Oyu Tolgoi’s main shaft, and the accounts were supported in the claim by Grant Brinkmann, who was Rio’s senior area manager of shafts at Oyu Tolgoi for the two years to May 2018.
Mr Brinkmann claims Rio executives, including global projects boss David Joyce, “knew things were delayed” by at least the end of 2017.
Rio did not give any indication of blowouts on the project until October 2018, and the multi-billion dollar nature of those blowouts was not fully disclosed until July 2019.
The timing of disclosures is crucial to the case, which seeks damages for investors who bought shares in Rio’s majority owned subsidiary Turquoise Hill in the belief the project was progressing well.
Mr Brinkmann was sacked by Rio in May 2018, with Mr Brinkmann and other former employees believing he was sacked for speaking up about the problems on the project.
“By the time I left, we had only been constructing [the Shaft 2 infrastructure] for six months, and we were already six months behind. We hadn’t advanced very far at all … It was a very poor start and just didn’t get any better,” he said.
The seventh former employee named in the claim, who worked on procurement for the project, was alarmed to be told that Rio was determined to prioritise the speed of the project, rather than the cost.
“It was a disaster. It was a complete joke,” he was quoted as saying.
Much of the procurement work on Oyu Tolgoi has been carried out by Rio’s Brisbane office, and that Australian involvement was one of the reasons the Australian government’s export credit agency was willing to lend $US150 million to the project in 2015.
The class action is part of a broader battle between the lead claimant Pentwater Capital Management and Rio, with Pentwater being the second biggest shareholder in Turquoise Hill and a vocal critic of Rio’s influence over company.
Aside from Rio and Turquoise Hill, former Rio chief Jean-Sebastien Jacques and Rio’s chief operating officer Arnaud Soirat are named as defendants.
Several executives of Turquoise Hill were also named as defendants, including recently departed chief executive Ulf Quellmann, who was effectively ousted because he pushed back against Rio on several topics, including Rio’s desire for Turquoise Hill to conduct a massive equity raising.
Rio is expected to push for the claim to be dismissed by the court before May 18.
″Rio Tinto believes that the complaint is without merit,” said a Rio spokesman.
BY: Peter Ker covers resource companies, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@afr.com
Published Date:2021-03-25
