One of Australia's leading class action lawyers says there is "potential" for a class action lawsuit against mining company Rio Tinto over its handling of a failed African coal mining investment and its controversial multibillion-dollar write-down.
"If the allegations that are made in the US proceeding are true, then what you had was a situation where, for about 13 months, senior officials of the company were aware that an asset needed to be impaired. And we're not just talking about a $5 packet of chewy," Andrew Watson, head of class actions at Maurice Blackburn, said.
The comments by Mr Watson came after dramatic news emerged this week that Rio and two of its top former executives had been charged with fraud in the United States by the Securities and Exchange Commission. Rio Tinto acquired its Mozambique coal assets for $US3.7 billion in 2011, but sold them in 2014 for just $US50 million.
"Yes, there is potential. But like any class action, what it'll involve is a consideration of a range of factors," Mr Watson said.
He also cited a $US36.4 million settlement that Rio revealed this week it had reached with Britain's Financial Conduct Authority (FCA) in relation to the timing of the impairment of the Mozambique coal assets.
"It's not just the US stuff, but in the UK the fact that Rio appeared to have copped ... some form of agreed penalty in relation to a shorter period, suggests that there's pretty significant stuff going on there in terms of what the market should have been properly [apprised] of," he said.
"The real issue, and where the rubber's really going to hit the road in the analysis here, is what might be the damage that flows from that conduct. And that is, necessarily, a relatively complicated picture," he said.
"What you look for in these cases is, when the news is revealed, whether or not there's a material price reaction to the revelations of the bad news," he said.
Rio Tinto shares fell 2.54 per cent on Thursday to $69.12.
The SEC alleged Rio Tinto, former chief executive Tom Albanese and former CFO Guy Elliott, inflated the value of Rio's Mozambique coal assets, which crumbled in value after the 2011 acquisition and were eventually sold in 2014 for a fraction of the price Rio had paid.
On Wednesday Rio Tinto, Mr Albanese and Mr Elliott all vowed to fight the fraud charges. Mr Albanese was particularly blunt, saying: "There is no truth in any of these charges. I echo Rio Tinto's confidence that these will be proved baseless in court."
A spokesperson for Mr Elliott said: "Guy also fully refutes these charges and will be vigorously contesting them."
In addition to Maurice Blackburn, lawyers from Slater and Gordon are also watching the Rio Tinto issue closely.
Andrew Paull, senior associate at Slater and Gordon, said that for a claim by ASX investors to be viable, it needed to be shown they suffered a loss that could be attributed to the conduct in question.
"Usually the way you would do that is by showing that there was a significant adverse share price reaction to the information that was said to be concealed. In this case, that didn't happen. In fact, when the company came out in 2013 and revealed to the market that these Mozambique assets, which it had spent billions of dollars on, would be written down, there was no negative share price reaction at all. In fact, on the day of that announcement there was a small, positive share price reaction," he said.
"In those circumstances it's hard for a claimant to say that this information would have caused the market to price Rio Tinto shares differently. And it makes a shareholder class action quite difficult. And unless further information comes out, we don't presently think that such a claim is able to be pursued," he said.
