Dirty Doings Alleged in Billion-Dollar Mine
(CN) - Brazilian metals and mining giant Vale S.A. and an Israeli diamond magnate conspired to steal an iron ore reserve potentially worth billions from its rightful owner, Rio Tinto, the aggrieved company claims in a federal lawsuit.
Rio Tinto, a British-Australian mining corporation based in London, claims it spent 11 years and hundreds of millions of dollars developing its mining concession in the Simandou region of southeast Guinea.
But when it came time to grant a license to mine of what may be the most valuable untapped reserve of iron ore in the world, the Guinean government grated it not to Rio Tinto, but to defendant Beny Steinmetz's BSG Resources, which then sold 51 percent of the mine to Vale for $2.5 billion, Rio Tinto says in the lawsuit in Manhattan Federal Court.
The Australian newspaper reported on May 1 that a government committee in the impoverished African nation recommended stripping Vale and BSG Resources of the concession, concluding that it had been acquired through bribes to the country's former mining minister, Mahmoud Thiam, and its former dictator, Lansana Conte.
According to The Australian, the commission identified BSG Resources as the linchpin in the scheme.
(In an email to Courthouse News, received Tuesday, after this article had been taken down, Mahmoud Thiam said through a spokesman: "The licenses mentioned above were acquired months and years before I became minister. Not under my watch. I never served under Lansana Conte and was never involved in their retrieval from Rio nor their attribution to BSGR. Even the so-called Committee got that part right.")
In its lawsuit, Rio Tinto squarely takes aim at Vale, which it claims played a critical role in the theft of the concession. In its lawsuit, however, Rio Tinto squarely takes aim at Vale, which it claims played a critical role in the theft of the concession.
"Beginning in August 2008, Vale entered into discussions with Rio Tinto to purchase some of the Simandou asset," the complaint states. "The Rio Tinto-Vale negotiations began in person with two meetings in New York in November 2008, during which Rio Tinto provided Vale with highly confidential and proprietary information regarding Simandou.
"Rio Tinto provided this information in good faith pursuant to a confidentiality agreement that required Vale to treat the information with discretion and solely for the intended purpose - to determine whether Rio Tinto and Vale could agree to terms on Rio Tinto's interest in Simandou.
"As Vale quickly surmised, 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," according to the 50-page lawsuit.
During the ensuing talks, Vale learned that Steinmetz, a multibillionaire who inherited the Geneva-based Steinmetz Diamond Group from his father, and has since expanded his business operations to include engineering and real estate interests, was attempting to "interfere with and steal" Rio Tinto's rights to the concession, according to the complaint.
"Given BSGR'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 BSGR's efforts to misappropriate Rio Tinto's rights included bribing various Guinean officials," the complaint states.
Rio Tinto claims that bribery alone wasn't enough to secure the Simandou concession. Because they lacked any track record in iron ore mining, Steinmetz and BSG Resources needed a partner to provide the technical knowhow and resources necessary to develop the mine.
This is the role Vale agreed to play, according to Rio Tinto.
"Indeed, upon learning of Steinmetz's and BSGR's efforts during the New York meetings, Vale - secretly and unbeknownst to Rio Tinto - entered into a conspiracy with Steinmetz and BSGR to misappropriate Rio Tinto's Simandou rights. The RICO enterprise was then born, and began conducting a pattern of racketeering activity in the United States and elsewhere," Rio Tinto claims.
Over the next year, the complaint states, Vale continued to feign interest in a deal with Rio Tinto, all the while extracting highly confidential information on mining methods suitable to the site, which is on top of a mountain in a tropical rainforest, drilling operations, and logistics, including the viability of different transportation options to and from the isolated site.
Rio Tinto claims that Vale secretly shared this information with Steinmetz and BSG Resources.
"The scheme quickly bore fruit when certain officials in the Guinean government announced in December 2008 that the government had rescinded half of Rio Tinto's Simandou interest and intended to assign that interest to BSGR," the complaint states.
Rio Tinto claims that "Vale's double dealing in furtherance of its conspiracy with BSGR and Steinmetz ... did not stop there."
"Seven months after Steinmetz and BSGR unlawfully induced the Guinean government to rescind Rio Tinto's Simandou rights, Vale continued to fraudulently conceal its association with Steinmetz and BSGR, and continued to misappropriate confidential information about Simandou mining operations from Rio Tinto," Rio Tinto claims.
This charade ended, Rio Tinto says, only after Vale resolved to formalize its relationship with its co-conspirators and purchased its $2.5 billion interest in BSG Resources' Guinean subsidiary.
Rio Tinto dismisses that transaction as an attempt to provide "a façade of legitimacy to the conspiracy."
Despite this, "the walls finally came crashing down on defendants in January 2013, as the U.S. and Guinean governments opened parallel criminal investigations into how Steinmetz and BSGR obtained their interest in Simandou," according to the complaint.
Rio Tinto claims that in a last-ditch "desperate" attempt to hide the criminal enterprise, the defendants sent a Steinmetz employee, defendant Frederic Cilins, to "conceal and/or destroy evidence" of their activities.
In April 2013, shortly before the Guinean government committee issued its recommendations, U.S. federal authorities arrested Cilins in Florida and charged him with obstruction of a grand jury investigation, destruction of evidence and witness tampering. Cilins pleaded guilty in March to obstruction of justice, according to The Wall Street Journal.
Today, the plaintiff says, at least six companies are investigating Steinmetz, BSG Resources and other defendants for their role in the theft of Rio Tinto's Simandou mining rights.
Rio Tinto seeks compensatory, consequential, exemplary, punitive and treble damages for fraud, civil conspiracy, RICO conspiracy, and aiding and abetting fraud.
It is represented by William Burck with Quinn, Emanuel, Urquhart & Sullivan in Washington, D.C.