Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF) has agreed to a $138.75 million settlement to resolve a class action lawsuit in the US accusing the company and its subsidiary, Turquoise Hill Resources Ltd (TSX:TRQ), of misleading investors about the cost overruns and delays associated with the Oyu Tolgoi copper and gold project in Mongolia.
The preliminary settlement, filed Wednesday night in the US District Court for the Southern District of New York, resolves claims arising from statements made between July 2018 and July 2019, when Rio Tinto was majority owner of Turquoise Hill. The British-Australian mining giant bought the remaining interest for US$3.3 billion in 2022.
Allegations of misleading statements
The securities class action, initiated by Pentwater Capital Management, was filed on behalf of Turquoise Hill shareholders who purchased securities during the alleged class period. The lawsuit contends that Rio Tinto and Turquoise Hill made false or misleading statements regarding the progress of the Oyu Tolgoi underground expansion project.
Investors were told that the project was “on plan and on budget,” despite significant issues that had led to a $1.9 billion cost overrun and delays of up to two and a half years. The plaintiffs argued that Rio Tinto and Turquoise Hill were aware of these issues but did not disclose them, leading investors to make decisions based on inaccurate information.
Rio Tinto’s role and settlement terms
While Rio Tinto and Turquoise Hill deny all allegations of wrongdoing, the companies have opted to settle the case to avoid the uncertainties and expenses of prolonged litigation. The settlement amount of $138.75 million will compensate affected shareholders.
Importantly, the settlement also resolves claims against former Rio Tinto CEO Jean-Sébastien Jacques, who was at the helm during the period in question. The terms of the settlement reportedly include an agreement to pay legal fees of up to $18 million and expenses of around $2.6 million, which will be presented to the court for approval.
Implications for Rio Tinto
The settlement marks a key milestone following Rio Tinto's full acquisition of Turquoise Hill in 2022, a deal that simplified the ownership structure of the Oyu Tolgoi project. As part of the acquisition, Rio Tinto gained complete control over the project, which has been marred by significant cost overruns and delays.
Although the settlement brings an end to the litigation, the Oyu Tolgoi mine continues to be a source of scrutiny due to its ongoing cost and schedule challenges. The legal resolution could also have wider implications for corporate governance within the mining sector, particularly in relation to how companies disclose project risks and manage shareholder expectations.
The settlement is subject to the approval of US District Judge Lewis J. Liman.