Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Activist investor Palliser Capital has stepped up its campaign for Rio Tinto to abandon its primary London listing, demanding an independent review of whether the miner should follow rival BHP and unify its corporate structure in Australia.
Rio Tinto’s dual-listed structure, with its primary listing in London and a secondary one in Sydney, had been an “unmitigated failure” that had deprived shareholders of $50bn in value, Palliser said in a letter sent to the board on Wednesday and seen by the Financial Times.
The UK-based hedge fund, which holds a stake worth about $250mn in Rio, first made its call for the company to quit London in May. The latest crusade has been timed to coincide with Rio’s investor day in London.
Australian investment firm Blackwattle Investment Partners has also backed the unification campaign, writing to the board earlier this year to highlight the deep discount at which the UK-listed Rio Tinto traded compared with its peer on the Australian Securities Exchange.
That valuation gap has widened to 19 per cent, from 15 per cent in May, according to Blackwattle.
A successful campaign by Palliser, whose chief investment officer James Smith was at Elliott Management when it campaigned for BHP to abandon its dual corporate structure, would deprive the FTSE 100 of the world’s second-largest mining company.
Rio shares would still be traded in London under Palliser’s proposal via a secondary listing. BHP moved its primary listing to Sydney in 2022.
Rio has repeatedly said that unifying its listing would cost “mid-single digit billions of dollars” in tax. The company has also said that it had conducted an internal review and concluded that such a move would destroy value.
Chief Financial Officer Peter Cunningham said earlier this year that Rio wanted to do some “rebalancing” of its listing — which is split 77/23 in favour of London — and that conducting share buybacks in the UK could be an option to achieve that.
Rio is however constrained in how much it can buy back in London, because its shareholder Chinalco, the Chinese state owned aluminium group, cannot hold more than 14.99 per cent of Rio’s London shares owing to a national interest limit set by the Australian government in 2008.
Alternatively, Jakob Stausholm, chief executive of Rio Tinto, also said in October that the company was considering issuing shares in Australia after it agreed to buy lithium developer Arcadium.
Asked by an analyst why the company was paying cash for the acquisition, therefore increasing its debt, Stausholm said he was thinking “a little bit” about issuing shares.
Palliser’s letter calls for a committee of three to four independent directors, alongside an external shareholder representative, to review the change in corporate structure and listing. The fund has also targeted one of Japan’s biggest property groups in recent weeks.
Ray David, a partner at Blackwattle, said that collapsing the share structure into the higher valued ASX-listed stock “still makes sense for shareholders” especially in a consolidating market where companies can finance acquisitions by using shares instead of paying cash.
Since it adopted the dual-listed structure, Rio Tinto has done all its M&A transactions in cash, rather than in shares.
Rio Tinto said in a statement ahead of its investor day that it expected to grow annual production by around 3 per cent a year to 2033. It provided shareholders with an outline of its anticipated increases in copper, lithium and iron ore production across key global projects over the next decade.