Rio sues Vale for billions over iron ore mine `theft`

22 BUSINESS
AUSE01Z50MA - V1
THE AUSTRALIAN, FRIDAY, MAY 2, 2014
theaustralian.com.au/business
Closer US ties bring
honour for execs
Pernod
buy good
for local
labels
Rio sues Vale for billions
over iron ore mine ‘theft’
BLAIR SPEEDY
WINE
MATT CHAMBERS
COURTS
Chevron’s Roy Krzywosinski at the dinner on Wednesday
AWARDS: Chevron executive
Roy Krzywosinski and Rio
Tinto iron ore chief Andrew
Harding have been honoured
for their contributions to USAustralian economic relations
at a gala function in Perth.
The pair were honoured at
the American Australian
Association benefit dinner at
the University of Western
Australia on Wednesday night,
marking the first time the
association has held an event in
the state.
Senior political and business
figures were among the 450
attending the dinner.
Qantas chief executive Alan
Joyce, Woodside Petroleum and
National Australia Bank
chairman Michael Chaney,
News Corp Australia chief
executive Julian Clarke, Seven
Group executive chairman Don
Voelte, Roy Hill chief executive
Barry Fitzgerald and Atlas Iron
chief executive Ken Brinsden
were among the business
identities at the dinner.
Foreign Minister Julie
Bishop, WA Premier Colin
Barnett, US ambassador John
Berry and former WA and
South Australian premiers
Richard Court and John Olsen
also attended.
Mr Krzywosinski is
overseeing Chevron’s
construction of two major
liquefied natural gas plants in
WA, which together will cost
more than $US80 billion
($86bn) to build. The company’s
Gorgon LNG project is the
largest single development
undertaken by Chevron.
Mr Krzywosinski, who has
spent the past nine years in
Australia, said he was honoured
and humbled by the award.
“It recognises the
commitment and dedication of
literally thousands of people,
people I’m proud to go to work
with every day at Chevron,” he
said. “This honour recognises
Chevron’s significant
investment in Australia, and the
mutual benefits it brings to both
our great nations.”
Mr Harding spent several
years living in Utah as the head
of Rio Tinto’s Kennecott
Bingham Canyon copper mine
before being promoted to the
head of the iron ore division last
year. “One thing I have learned
from my experience working in
America and in Australia is that
a strong partnership combined
with genuine commitment,
delivers huge influence and
capacity to contribute
constructively to society,” Mr
Harding said while accepting
his award.
“And it is up to every one of
us, and especially to the
recipients of these American
Australian Association
fellowships, to bring the best of
both of our countries and make
this partnership a genuine force
for good in the world.”
Mr Berry told the dinner that
he had first learned about the
“warm-hearted and generous”
nature of Australians through
the stories his father told him
after World War II. “Our
friendship is long and it is vast,”
he said. “The spirit of the Anzacs
and the goodness that my father
witnessed in 1943 is alive and
well in Australia today.”
The evening also celebrated
Australia to USA fellowship
recipients in various fields.
PAUL GARVEY
IN THE ZONE P25
Downturn ‘a bump’ on road
RESOURCES: Strong demand for
Australia’s rich resources will
continue for decades, says
Owen Hegarty, who sees
growth in Asia continuing to
support commodity supply.
Mr Hegarty, chairman of
resource investment house
EMR Capital and a director of
Fortescue Metals, said one
factor underpinning demand —
the urbanisation of China —
still had years to run.
“There is multiple decades of
strong demand growth, led by
China and followed by India,
with the rest of the developing
world revving their engines and
looking to get on the super
highway of economic growth
and activity,” he told The
Australian ahead of a speech in
Sydney yesterday.
“In China, we are seeing a
number of changes, structural
changes. All of those reforms
and changes they are looking to
make have a positive impact on
growth, which will have a
positive impact on commodity
demand.”
Infrastructure projects in the
Asian region would continue as
cities in central and western
China waited for the growth
that had occurred in the east to
come to them.
“One measure of China’s
progress along the path to a
developed consumerist
economy is the per-capita use of
base metals,” he said. “China’s
consumption is currently
around half the peak reached by
Japan and South Korea as they
made the same journey.”
Mr Hegarty said the decades
ahead would see a cycle of AsiaAustralian economic growth in
which Asian mineral demand
would increasingly be met by
the region’s largely underexploited prospectivity, funded
by Asian capital and resourced
with Australian technology and
management skills.
The resources veteran, who
is also a principal of Tigers
Realm, believes Australia can
continue to play a role in
development in Asia, including
through Australia’s world-class
technology and managerial
expertise in exploration through
development and sustainability.
“There are lots of discoveries
still to come in Australia, they
will be deeper, under cover and
harder to find,” he said.
As to the recent downturn in
the resources sector, there were
bound to be bumps along the
way. “We have seen some of
those but you are going to see
long, strong, commodity
demand. It is a bit of a hump at
the moment.”
SARAH-JANE TASKER
Commonwealth Bank Interest Rates
Notice to customers that the following rates are effective
2 May 2014
RIO Tinto has hurled unprecedented allegations at its global
iron ore rival, Brazil’s Vale, suing
it for billions of dollars for conspiring with Israeli diamond
merchant Beny Steinmetz to
dupe Rio and steal half its Simandou iron ore deposit in Guinea.
The alleged theft and conspiracy came after Rio, struggling
during the global financial crisis
under a $US40 billion debt burden and a BHP Billiton takeover
bid, invited arch-rival Vale into a
data room on the giant Simandou deposit, one of the world’s
biggest and highest-grade undeveloped iron ore resources.
In court documents lodged in
New York, Rio alleges that Vale,
under the guise of entering Simandou, drew confidential information on geology, mine
planning, logistics and transport
options out of Rio.
At the same time, it was allegedly secretly dealing with Steinmetz’s BSG Resources, who was
bribing officials to take the tenements off Rio.
“While BSG and Steinmetz
pursued their illegal bribery campaign in Guinea, Vale’s role in the
scheme was to continue to obtain
Rio Tinto’s highly confidential
and proprietary information
under false pretences, and pass
that information on to Steinmetz
and BSGR in order to facilitate
their efforts to induce officials in
the Guinean government to rescind Rio Tinto’s rights,” Rio said
in the April 30 complaint lodged
in the US District Court in the
southern district of New York.
The extraordinary allegations
represent a dispute over business
conduct between two mining giants of an extent not seen in recent memory.
Rio’s complaint homes in on
Vale’s alleged relationship with
BSG from immediately after
Rio’s revelations to Vale that the
Israeli company was trying to get
control of Rio’s assets.
Rio is calling for Vale, BSGR,
former mines minister Mahmoud Thiam and other related
parties to pay compensation for
lost future earnings and for the
hundreds of millions of dollars
spent on development at Simandou blocks 1 and 2, which were
stripped off Rio by Guinea in
December 2008 and given to
BSGR.
“Further, Rio Tinto seeks the
imposition of punitive damages
sufficient to deter the defendants
from committing such lawful
conduct in the future,” the documents say.
With Vale in April 2010 agreeing to pay BSGR $US2.5bn for
half the tenements, Rio is believed to be chasing an amount
much higher than this.
The tenements have now
been stripped from BSGR and
$
140
120
1
100
Rio Tinto’s Simandou project in Guinea
2
80
3
60
7
8
4
5
6
40
10
Source: Bloomberg
2008
2009
Balance
Standard rate
Bonus interest
With bonus
interest
Up to $100,000
0.01% p.a.
3.80% p.a.
3.81% p.a.
Over $100,000
0.01% p.a.
N/A
N/A
Things you need to know: Bonus interest is applicable on balances up to
$100,000, if the closing balance on the last day of a calendar month is at least
$200 higher (excluding interest earned) than the opening balance on the first day
of the same month, with no more than one (1) withdrawal in the same period. Full
terms and conditions are available on request. Bank fees and charges may apply.
For more information please call 13 2221, 24 hours a day, 7 days a week.
Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 CLA1841
Visit us at commbank.com.au
2010
2011
Guinean mines minister
Jun 2009: Vale and Rio
propose their own joint
run by Israeli billionaire
1 Aug 2008: As Rio Tinto’s
Mahmoud Thiam a
venture development.
Beny Steinmetz,is
share price plummets
7 end discussions and
$US200m bribe for the
extensive due diligence
targeting three of
because of its huge debt
Dec 10, 2008: Rio takes
transfer of the block to
on Simandou.
Rio’s four Simandou
levels in the GFC, Vale
5 Vale on tour of part of
BSG.
concessions
enters discussions with
Apr 30, 2010: Vale
Simandou that just the
amid government
Rio Tinto to purchase
Jun 2010: Guinea tells
next day are taken from 8 publicly reveals it has
dissatisfaction with Rio’s
some of the Simandou
been negotiating with
Rio and given to BSG
10 Rio it may take another
speed of development.
iron ore asset in Guinea.
Simandou block off it.
BSG on the tenements
Resources.
and will pay $US2.5bn to
Dec 2008: Court
Nov 14, 2008: Vale offers
Apr 2011: Rio agrees to
Dec 11, 2008: Guinea
2 to purchase all of
join the project.
4 documents allege Vale
6 announces it is awarding
11 pay $US700m settlement
and BSG Resources meet
Simandou off Rio.
to Guinea to keep its
Jun 2010: Rio alleges in
two of Rio’s four
and then confer with the
remaining two
Simandou blocks to BSG 9 court documents that
Nov 24: Rio tells Vale
Guinea
government
to
tenements.
Steinmetz pays then
Resources.
3 that BSG Resources,
Vale but are expected to be put up
for tender, rather than given back
to Rio.
The northern Simandou
tenements, which made up half
of Rio’s project, were taken from
it amid government dissatisfaction with the pace and cost of
development of the project.
As well as losing the northern
tenements, Rio and its Simandou
partners in April 2011 agreed to
pay a $US700m “settlement payment” to a new Guinea government just to hold on to the two
southern tenements, on which
Rio is now considering a
$US20bn project.
The claim comes less than a
week after Vale confirmed Guinea had stripped the tenements
from Vale and BSGR, in line with
a committee finding that they
had been acquired through corruption and that there had been
bribes paid to Thiam and Lansana Conte, Guinea’s dictator at
the time.
The documents leave no
doubt as to how angry Rio feels
over the alleged use of confidential information handed over on
Simandou, in a claim peppered
with colourful prose rarely seen
in Australian court filings from
big companies.
“Vale saw a golden opportunity not only to obtain control
(of Simandou) but to do so on the
cheap, when Vale learned from
Rio that defendants Steinmetz
and BSG Resources were attempting to interfere with and
steal Rio Tinto’s rights to the Simandou concession,” the complaint says.
“Vale feigned continued interest in pursuing a deal with Rio
Tinto so that it could extract
more of Rio Tinto’s highly confidential business information.”
At a New York meeting on
November 24, 2008, when Vale
made an offer for the whole of Simandou, Rio told Vale that BSG
had been targeting Rio’s concessions, the documents say.
“Given BSG’s reputation for
corruption and bribery — well
known among those active in the
mining industry, including Vale
— Vale was on notice that Steinmetz’s and BSG’s efforts to misappropriate Rio Tinto’s rights
included bribing various officials,” the complaint says.
The documents say bribing
officials was necessary to acquire
Simandou because BSG had no
track record in mining.
But a big mining partner was
still needed.
“Upon learning of Steinmetz’s
and BSGR’s efforts during the
New York meetings Vale — secretly and unbeknown to Rio
Tinto — entered into a conspiracy with Steinmetz and BSGR to
misappropriate Rio Tinto’s Simandou rights,” the documents
say.
“The RICO enterprise was
then born and began conducting
a pattern of racketeering activity
in the US and elsewhere,” Rio
said.
Rio is alleging violation of the
US Racketeer Influence and
Corrupt Organisations Act, or
RICO.
The court documents allege
Vale met with BSG and the Guinea government the same month
BSG was given the northern
tenements, but continued talks
with Rio for another six months.
“Unaware of Vale’s sinister
design, Rio Tinto provided highly confidential information re-
sponsive to Vale’s inquiries,” the
complaint says.
It was not until April 2010 that
Vale agreed to pay $US2.5bn for
a 51 per cent stake in Simandou
blocks 1 and 2.
The claim has been filed so
long after the event because of
evidence recently revealed by US
Department of Justice and Guinea government investigations,
which have been combined with
Rio’s knowledge of what happened.
On its quarterly earnings call
on Wednesday night, Vale said it
was not aware of the claims from
Rio Tinto but said it had been
cleared of any wrongdoing by
Guinea, France, Switzerland and
the US, as well as having been invited to tender for the tenements
by Guinea.
“Rio Tinto chose to do nothing with its mining rights so the
mining rights were taken away,”
a BSGR spokesman reportedly
told Bloomberg.
“Baseless and bizarre lawsuits
like this won’t change that fact.”
Mr Thiam told Bloomberg the
claims were false and “borderline
comical”.
Miners’ share prices smashed as prices tumble again
BARRY FITZGERALD
COMMODITIES
A FALL in iron prices to near 20month lows has prompted
another round of bloodletting in
the market values of producers.
Fortescue
shares
have
plunged 4 per cent, Rio Tinto
tumbled 1.6 per cent and the less
iron ore-reliant BHP Billiton
gave up 0.8 per cent.
Among smaller producers,
Atlas fell 4 per cent and BC Iron
was down 3.6 per cent.
The severity of yesterday’s
sell-off suggests capitulation by
investors to the growing tide of
opinion that the move in the seaborne market to over-supply,
after more than a decade of
under-supply, means continuing
iron ore price pressure.
China’s crackdown on the use
of iron ore stockpiles in shady
financing deals and a step-up in
its attempts to weed out inefficient and polluting steelmakers
has not helped.
Iron ore fell $US2.90 or 2.7 per
cent to $US105.40 a tonne ahead
of the May Day holidays, according to The Steel Index. Other
than the brief fall to $US104.70
on March 10, it is the lowest price
since September 2012. The fall
came despite the latest price jawboning efforts of Brazilian iron
ore giant Vale.
Vale chief executive Murilo
Ferreira told analysts on a conference call for the group’s first
quarter results that the company
expected the price to improve in
the second half.
But for that to happen, iron
ore prices will have to rise strongly from here. That’s because the
year-to-date
average
of
$US118.90 is $US13.50 a tonne
higher than the current price.
And a sharp rise in the second
half would be in defiance of the
so-called wall of new supply due
to hit the seaborne market in the
period.
Mr Ferreira repeated an
assessment he made on a recent
visit to Melbourne — that the
price would not go below $US110
a tonne on a “sustainable basis’’.
But he admitted that that depended on demand-side improvement, not only in China,
but in the wider market.
CLASSIC DOONESBURY (1973) G.B. TRUDEAU
GoalSaver Account
11
9
“We see some better figures in
Europe economically speaking,
not in the steel and iron ore market yet, but we believe that we
will reach this point.’’
Vale’s conviction that $US110
a tonne is the long-term bottom
is based on the idea that China’s
higher-cost domestic production
of iron ore would fall away at prices below that trigger level.
Analysis by Macquarie’s commodity desk is in general agreement. But in a note to clients
yesterday, it said it was also likely
that an “aggressive market share
battle’’ could erupt between
higher-cost seaborne producers
to push material into China.
“There are likely to be some
casualties from this in terms of
smaller players in the market,
plus the potential for a lower iron
ore price. This is when the impact
of supply growth will be more
widely felt, and the flexible private sector end of the Chinese
cost curve may be lost forever,’’
Macquarie said.
ANZ’s commodities desk put
the renewed weakness in iron ore
down to the crackdown on trade
financing, announced by Beijing
on Monday. “Anecdotal feedback from select Chinese (steel)
mills indicates fundamentals remain solid and in fact, some mills
are expecting better profits in
May. Meaningful restocking
activity isn’t expected until June
however, with mills preferring to
operate hand-to-mouth in the
current falling market,’’ ANZ
said.
LIQUOR giant Pernod Ricard
has acquired its first US winery
in a move the company says will
accelerate sales of labels including Australian-made Jacob’s
Creek in the world’s largest and
most profitable wine market.
Jean-Christophe Coutures,
chief of Pernod Ricard Winemakers, said the purchase of
Kenwood Vineyards of California from US wine company
F Korbel & Bros would rapidly
expand Pernod’s reach in the
US via Kenwood’s distribution
network across 50 states.
“We are only No 16 in the US
wine market, whereas in every
other large wine market in the
world we’re in the top three
wine companies,” Mr Coutures
said.
“The big issue we have is
access to distribution, and Kenwood gives us larger and stronger distribution access which will
benefit the rest of our brands.”
In a system dating back to
the repeal of alcohol prohibition
in the US in 1933, liquor producers can sell to retailers only via
state-based distribution companies.
But rather than preventing
liquor manufacturers from
gaining excessive market power
as planned, the system has more
recently acted as a barrier to
entry for competitors seeking to
crack the US.
‘To reach our goal
of doubling our
business in the
US, we needed to
make an
acquisition’
JEAN-CHRISTOPHE
COUTURES
PERNOD RICARD
Kenwood produces more
than 500,000 cases a year, with
an average retail price of $US10
($10.77) a bottle, although its
“super premium” range sells for
up to $US45 a bottle.
The acquisition, which includes about 100ha of vineyards, a winery and the rights to
the Kenwood brands, is believed
to have cost about $100 million
but the final price will not be revealed until settlement next
month.
In addition to being a conduit
for Pernod’s Australian, New
Zealand, Spanish and Argentinian wines, Mr Coutures said
Kenwood would also be targeted for growth with an increase
in marketing spend and a push
into the unexplored export market.
“It has a lot of growth potential. The brand has heritage, it’s
always had consistent quality,
and we think it can double its
case sales in three to five years,”
he said.
“We have big ambitions in
China and the US — but we
didn’t have any brands in the
US, and US-made wine represents 80 per cent of consumption there, so in order to be
credible and reach our goal of
doubling our business in the US,
we needed to make an acquisition.”
Mr Coutures said Pernod
would be interested in buying
the US assets of Australian wine
major Treasury Wine Estates,
which owns several wineries including Beringer, Stag’s Leap
and Chateau St Jean.
TWE boss Mike Clarke last
month said the company’s US
business was too important to
give up, despite suffering a series
of writedowns including a
$160m hit on excess inventory
that last year cost his predecessor David Dearie his job.
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