This preliminary agreement, awaiting court approval, brings an end to a protracted legal battle that highlighted transparency issues in large-scale Mining Projects.
Rio Tinto announced on Wednesday, June 18, that it has reached a preliminary settlement of $138.75 million in a long-running class action lawsuit filed in the US District Court in Manhattan, New York. The lawsuit, spearheaded by US hedge fund Pentwater Capital, accused the Anglo-Australian miner of concealing significant development delays and budget overruns at its $7 billion Oyu Tolgoi copper-gold mine in Mongolia. The allegations specifically targeted a one-year period between 2018 and 2019, claiming that Rio Tinto failed to accurately disclose the true status of the underground expansion of the project.
According to Pentwater Capital, Rio Tinto, along with its then-subsidiary Turquoise Hill Resources, violated federal securities laws by assuring investors that the expansion was progressing "on plan" and "on budget." In reality, the lawsuit contended, the project was reportedly 2.5 years behind schedule and more than $1 billion over its initial budget. This discrepancy, it was argued, led Turquoise Hill's shareholders to make investment decisions based on misleading information.
The Oyu Tolgoi mine, located in Mongolia's South Gobi desert, is a cornerstone of Rio Tinto's long-term strategy to expand its copper portfolio, a metal deemed crucial for the global energy transition, electric vehicles, and renewable power infrastructure. The mine's complex ownership structure at the time saw Turquoise Hill Resources, a single-asset company, holding a 66% stake in Oyu Tolgoi, with the Mongolian government owning the remaining 34%. Rio Tinto, in turn, held a 51% majority stake in Turquoise Hill prior to its full acquisition of the remaining stake for $3.3 billion in 2022. The underground expansion of the mine officially commenced production in 2023.
Court documents reveal that Rio Tinto entered the settlement "without any admission by Rio Tinto or the individual defendants," stating its intention to "avoid the uncertainty and expense of continued litigation." This move underscores the company's desire to put the costly and time-consuming legal dispute behind it, despite denying any wrongdoing. The settlement is now pending approval from a District Court judge.
The financial implications of the settlement also include significant legal fees. Lawyers representing the shareholders plan to seek up to 13% of the settlement amount, approximately $18 million excluding interest, in legal fees, along with up to $2.6 million for expenses, as indicated in court documents.
