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Bribery allegations in Rio's (RIO) Vale (VALE) lawsuit raise eyebrows in staid mining world

Peter Kennedy Peter Kennedy, Stockhouse
1 Comment| May 5, 2014

In recent years, Canadian companies Niko Resources Ltd. (TSX: T.NKO, Stock Forum), SNC-Lavalin Inc. (TSX: T.SNC, Stock Forum) and Griffiths International Inc. reminded investors of what might be going on behind closed doors when prized assets are up for grabs.

But even grizzled veterans of the international resource scene have had their eyebrows raised by the text of a lawsuit launched by the U.K mining giant Rio Tinto PLC (NYSE: RIOStock Forum).

“It’s a fascinating read,’’ said one Vancouver resource executive who asked not to be named.

In documents filed in a New York district court on April 30, 2014, Rio is alleging that its Brazilian rival Vale SA (NYSE: VALE, Stock Forum) used confidential information obtained during meetings with Rio officials to steal part of the massive Simandou iron ore project in Guinea, West Africa.  

Property disputes are almost a daily occurrence in the mining sector. But mining officials say they are startled by the aggressive language used in the lawsuit as well as the value of bribes that were allegedly paid out to officials in the Guinea government.

The complaint relates to the loss of half of Rio Tinto’s mining concession (blocks 1 and 2) in 2008.

Vale acquired the rights to 51% per cent of the northern half of the project in 2010 by agreeing to pay $2.5 billion to companies tied to Beny Steinmetz, an Israeli-born diamond trader who had allegedly paid bribes to the Guinea government in exchange for rights to the site.

“Defendant Vale saw a golden opportunity not only to obtain control, but to do so on the cheap, when Vale learned that defendants Steinmetz and (his mining arm) BSG Resources Ltd. were attempting to interfere with and steal Rio Tinto’s rights to the Simandou concession,’’ Rio alleges in the 50-page civil action document.

Rio goes on to explain that gaining control of the Simandou deposit would strengthen Vale’s position in the world’s high-grade iron ore market, since the only other comparable source is Vale’s own Carajas Iron Ore Mine in Brazil.

The alleged bribes took the form of a diamond-encrusted watch that was paid to the late Guinea President Lansana Conte, and a similarly encrusted Formula 1 race car that was presented to the country's former Minister of Mines.

In June 2010, Steinmetz  allegedly paid a $200 million bribe to the former Mines Minister for facilitating the signing of documents that led to BSGR being granted an exploration license to Blocks 1 and 2 at Simandou.

Rio said efforts by the defendants named in the suit to conceal their allegedly “illegal and tortuous activities” ended in January 2013, when the U.S. Attorney’s Office and the FBI launched a criminal investigation of potential violations of the Foreign Corrupt Practises Act.

Investigators are also looking into potential violations of anti-money laundering statutes relating to, among other things, the laundering into and through the United States of potential bribe payments to Guinean officials for the purpose of obtaining Rio Tinto’s rights to Simandou, the mining giant said.

The allegations in the Rio action have yet to be tested in a court of law. Therefore the named defendants are assumed to be innocent until it is proven otherwise.

Meanwhile, in a press release announcing the civil action, Rio was careful to point out that its complaint is not against the current government of Guinea. A military junta took control of Guinea when Lansana Conte died in December 2008. The West African country is now ruled by Alpha Conde, its first democratically elected President.

Rio Tinto and the Government of Guinea signed a settlement agreement in 2011 that relates to the southern concession of Simandou, known as blocks 3 and 4, and is the location of Rio Tinto’s declared iron ore resources in Guinea.
Rio and the government are now working co-operatively, Rio said.

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