Lake Superior Mining News

In perhaps Rio Tinto’s sexiest blunder in a string of mishaps over the last year, a company executive has been arrested by Chinese authorities “on the suspicion of espionage and stealing state secrets,” according to Australia’s Foreign Minister, Stephen Smith.

Stern Hu, Rio Tinto’s general manager of iron ore in China, was detained by the Ministry of State Security on Sunday, along with three other company executives.

The Chinese government-owned Chinalco is currently Rio Tinto’s largest shareholder.

Rio Tinto, other iron ore producers, and China are currently in iron ore pricing negotiations while Rio has refused China’s demands for large price cuts.   Rio’s iron ore officials have been meeting in Singapore and Hong Kong for the past month over fears that China’s Iron and Steel Association may be attempting to hack into the company’s phone and e-mail systems.  In April China was accused of spying on Australian Prime Minister Kevin Rudd’s phone and e-mail, in addition to targeting Rio Tinto’s communication systems during the early stages of an ultimately unsuccessful effort to purchase roughly one-fifth of the company.

Rio Tinto has had a number of problems over the past year that have led many to question the competence of company management and Rio’s ability to make ethical and informed decisions.

In March 2008, the Salt Lake Tribune reported that Rio Tinto’s wholly-owned subsidiary, Kennecott Copper, had covered-up, since 1988, the potential for a deadly tailings disaster near the town of Magna, Utah.  The Tribune uncovered an internal company memo revealing high-level discussions on whether it would be more cost effective for the company to pay legal damages if a number of Magna citizens died in the event of a dam failure or fix the unstable tailings dam.  Kennecott, under the direction of president Frank Joklik, decided to not fix the dam at the time.  Joklik currently sits on the board of Prime Meridian Resources, an exploration company searching for metallic mineral deposits in Minnesota and Michigan.

In September 2008, the Government of Norway, formerly one of Rio Tinto’s largest shareholders, divested a roughly $800 million stake in the company, calling Rio Tinto’s activities at the Grasberg Mine, in West Papua, “grossly unethical.”

Since then, Rio Tinto’s share price has collapsed (more than that of other large mining companies) along with the price of many metals, causing many investors to worry about Rio’s ability to successfully pay off $40 billion debt burden accrued with the purchase of aluminum giant, Alcan, in 2007.  Rio Tinto has since sold additional shares to investors in an effort to pay off a portion of the debt.

In an attempt to sell roughly one-fifth of the company to Chinalco, in order to pay off debt, Rio met with intense shareholder opposition and was forced to back out of the highly-publicized deal.  In response, Chinese officials expressed dissatisfaction, going so far as to compare Rio Tinto to an “unfaithful woman.”

On June 19,  Rio Tinto was notified by a group of Wisconsin citizens that a lawsuit is pending that relates to ongoing pollution at the company’s partially-reclaimed Flambeau Mine, in northern Wisconsin.  According to the company’s own monitoring data, the closed mine continues to leach concentrations of heavy metals that violate Wisconsin and federal laws.  The Wisconsin Resources Protection Council also intends to sue the state’s Department of Natural Resources for failing to enforce applicable law at the mine site.

Rio is currently fending off technical criticism from a well-respected rock mechanics expert, Jack Parker.  Parker questions the company’s competence in its design of the proposed Eagle Mine, in the Upper Peninsula of Michigan. Parker has worked as an independent rock mechanics consultant on hundreds of mining projects and also directed the rock mechanics at the now-closed White Pine copper mine, in the Upper Peninsula.

Parker concurs with a rock mechanics expert hired by the Michigan Department of Environmental Quality who assessed that the company did not utilize “industry best practice” when designing the mine and that “conclusions made within the Eagle project mining permit application regarding crown pillar subsidence are not considered to be defensible.” Dr. David Sainsbury also expressed concerns that “there was no one internally, for Kennecott, that [had] the expertise required to understand the technical nature of the discussions” contained in the mining application.

In a bizarre riposte, while dodging the Sainsbury assessment, the beleaguered Rio Tinto has charged that it is Jack Parker who has not utilized “industry best practice” with his critique of the Eagle Mine plan.

Despite receiving official state approval in 2007, Rio Tinto has been unable to open the Eagle Mine due to depressed metal prices, an inability to secure final permits from the federal government, and problems associated with its mine plan.  The company continues to explore for metallic minerals elsewhere in Michigan, including within the Ottawa National Forest, and maintains exploration projects in Minnesota and Ontario.

This entry was posted on Friday, July 10th, 2009 at 1:21 am and is filed under China, Kennecott-Rio Tinto. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.