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Mining Giant Rio Tinto plc Creates Big Problems with Lawsuit Against Vale SA

In the wake of just a few days after the Guinean government had taken away vital mining permits once belonging to Vale (NYSE: VALE), Vale SA is now up a...

|May 15|magazine6 min read

In the wake of just a few days after the Guinean government had taken away vital mining permits once belonging to Vale (NYSE: VALE), Vale SA is now up against even more problems. A lawsuit has now been filed by the Australian miner Rio Tinto (NYSE: RIO) against both Vale and BSG Resources. The lawsuit contends that both Vale and BSG Resources are guilty of collusion in the effort to steal Rio Tinto’s mining concession in Guinea. Prominently called out in the lawsuit is the immense value that Rio Tinto has assigned to the Simandou iron ore deposit in Guinea.

A technical committee has already been set up by the Guinean government to investigate allegations of bribery against BSG Resources. In conjunction with this committee, President Alpha Condé had made a decision to cancel the BS Resources’ rights which was apparently influenced by the publication of a Guinea government report which alleged that BSG Resources were awarded the rights to the portion of prized mining operations through corruption and illegitimate proceedings, including bribery.

BSG Resources sold a 51 percent stake in the Simandou project to Vale in 2010. Therefore, the committee has made recommendations that the Guinean government strip both of the miners, Vale and BSG Resources, of their rights to the prize project. The government of Guinea acted as per the recommendations of the technical committee and canceled BSG Resources and Vale's mining permits. While the committee has not accused Vale of any wrongdoing, Rio Tinto has claimed that the Brazilian mining giant colluded with BSG Resources to commandeer its mining rights.

Rio Tinto previously owned the rights to the Simandou iron ore project up until 2008, at which the point the Guinean government argumentatively granted half of the mining rights to the Simandou deposit to BSG Resources. The decision was made by the then Guinea President Lansana Conte. Rio still controls half of the mining rights to Simandou deposit along with Aluminum Corp of China. And this element is a driving force behind the action Rio is currently taking, seeking compensation from Vale and BSG Resources for the billions of dollars it says it lost because of the actions of the two companies.

Rio Tinto’s new lawsuit creates a brand new problem for Vale SA since Rio is asking for significant compensation. The degree of compensation that Rio is demanding could equate to billions of dollars. This new lawsuit compounds the troubles Vale Sa is already up against, especially considering the already weak iron ore prices they’re currently dealing with, struggling with a drastic drop in profits recorded in the first quarter.