Rio Tinto Must Face Rap In U.S. Court Over Mongolian Mine Cost Overruns

A US judge said Rio Tinto Plc must face an investor lawsuit accusing the Anglo-Australian mining giant of concealing delays and huge cost overruns at a Mongolian copper and gold mine owned by Turquoise Hill Resources Ltd, in which Rio Tinto has a majority stake.

Photo Insert: The controversy revolves around operations of the Oyu Tolgoi mine.

In a 134-page decision made public on Tuesday, US District Judge Lewis Liman in Manhattan said funds advised by Pentwater Capital Management LP, Turquoise's largest minority shareholder with about a 10% stake, may pursue a proposed class action on behalf of Turquoise shareholders from July 2018 to July 2019.

The judge dismissed some claims against Rio Tinto and various executives and all claims against Montreal-based Turquoise.

His decision is dated Sept. 2. Pentwater accused Rio Tinto and Turquoise of fraudulently assuring that the $5.3 billion Oyu Tolgoi mine was "on plan" and "on budget," even as it was falling up to 2-1/2 years behind schedule and coming in as much as $1.9 billion over budget.

Shareholders of Turquoise said their investments lost close to three-quarters of their value as the truth became known. The shareholders are seeking damages from Rio to recoup their losses.

In letting Chicago-based Pentwater seek to hold Rio Tinto liable for some of Turquoise's statements, Liman cited claims that the companies had an "extraordinarily close relationship," and that Rio Tinto had "near total control" over the mine.

"Plaintiffs do sufficiently allege that Rio knew of delays or cost overruns shortly before the class period and, instead of trying to fix them or disclose them to investors, attempted to silence those who spoke out about them," Liman wrote.

Rio Tinto said Pentwater's claims were unfounded and said it had consistently complied with its disclosure obligations.

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