REG - Rio Tinto - Statement: AGM resolution to review DLC structure

Rio TintoAnnouncement

19/03/2025 07:15

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RNS Number : 2243B  Rio Tinto PLC  19 March 2025

 

Notice to
ASX/LSE

Statement on AGM resolution to review the Rio Tinto dual- listed companies
structure

19 March 2025

 

The Board of Rio Tinto is issuing this statement to all shareholders ahead of
the AGMs on 3 April 2025 and 1 May 2025, to address a resolution requisitioned
by Palliser Capital and certain other shareholders and related reports issued
by Glass Lewis and ISS.

 

As set out in the 2025 AGM Notice of Meeting, Palliser Capital has
requisitioned a resolution directing Rio Tinto plc to form a committee of
independent directors (with an external shareholder representative in
attendance) to review whether a unification of the dual-listed companies (DLC)
structure into an Australian-domiciled holding company is in the best
interests of shareholders. The resolution further requires this committee to
commission an independent expert report on this matter and publish a detailed
report of the committee's findings.

 

The Board unanimously recommends shareholders vote against this resolution on
the basis that:

 

·      The Board has already conducted a robust and comprehensive review
of a unification of the DLC with five leading external advisers, the
conclusions of which are clear.

·      Rio Tinto has engaged extensively with both Palliser Capital and
a wide range of other shareholders, whose views have been fully taken into
account.

·      A unification of the DLC would be value destructive for the Group
and its shareholders. Assertions about US$50 billion of value erosion due to
the Group's DLC are both unfounded and misleading.

·      The rationale for unifying DLC structures at other companies
(including BHP) does not apply to Rio Tinto for several reasons, including the
location, growth outlook and tax profile of the Group's assets, and the scale
of the entity to be absorbed by the acquiring entity in any DLC unification.

·      A DLC unification is not required to provide the Group with
strategic flexibility.

·      Since the DLC was formed in 1995, Rio Tinto has outperformed the
FTSE100 and ASX200(1).

·      The Board has already published its conclusions, and disclosure
of further analysis in key commercially sensitive areas would be prejudicial
to shareholders' interests.

·      A further review of this topic would be wholly duplicative at a
time of important execution against the Group's strategic objectives.

·      A DLC unification review conducted by a Board committee with an
external shareholder representative in attendance (as required by the
resolution, if approved) carries significant governance implications,
including the ability of the Board to effectively carry out its role.

 

The remainder of this statement provides a summary of the Board's position,
with further detail in the Notice of Meetings and accompanying presentation on
Rio Tinto's website.

 

The Board has already completed a recent comprehensive review of the DLC with
significant input from leading external advisers, and from both Palliser
Capital and our shareholders.

 

As part of its focus on shareholder value, the Board has, in the ordinary
course, periodically reviewed the merits of retaining the Group's DLC
structure. Most recently, a unification of the DLC was reviewed over several
months in 2024, with substantial input and advice from five leading external
advisers - financial advisers (Goldman Sachs and J.P. Morgan) and legal
advisers (Linklaters LLP and Allens). Detailed tax analysis was undertaken by
leading professional services firm EY. Rio Tinto notes that half of the Board
was appointed less than three years ago and brings fresh perspectives, and the
Board benefits from directors with directly relevant capital markets and
financial services expertise.

 

This review took account of the specific characteristics of Rio Tinto's DLC
structure. Forming conclusions based on comparisons to other DLC structures is
overly simplistic and misleading given the unique nature of each DLC. For
example, relative to the former BHP DLC structure, Rio Tinto has (i) a
materially different geographic asset mix, growth outlook and therefore tax
profile, and (ii) a far greater proportion of the shares held through the plc
company (77% at Rio Tinto compared to 42% at BHP prior to its DLC being
unified) that would need to be acquired as part of a DLC unification under the
Limited company.

 

Rio Tinto welcomes dialogue with all shareholders to drive sustainable value,
and has met Palliser Capital seven times in 2024 and 2025, including our
Chair, CEO and CFO. It has also engaged widely with other shareholders since
summer 2024 to seek their input and perspectives.

 

The findings of this review and shareholder feedback were carefully considered
by the full Board at multiple meetings, including independent non-executive
directors and all new Board members who joined after the first review. The
conclusions and recommendations of the review were critically and
comprehensively tested and challenged by the Board. The Board also considered
Palliser Capital's publications and the desk-top review conducted by Grant
Thornton dated 10 March 2025 that was commissioned by Palliser Capital.

 

The Board has published its conclusions through the Notices of Meeting and
related presentation on the Rio Tinto website
(https://www.riotinto.com/en/invest/shareholder-information/annual-general-meetings)
, and it has discussed this matter with a broad range of shareholders. The
Board believes that disclosure of further analysis in key commercially
sensitive areas would be prejudicial to shareholders' interests.

 

A DLC unification would be value destructive for the Group and its
shareholders

 

The detailed tax analysis by EY concluded that a DLC unification would result
in expected tax costs in mid-single digit US$ billions, and would therefore
reduce net asset value. Further, a DLC unification is expected to result in
significant "wastage" of franking credits in the future given the >3x
increase in franked dividends paid to Rio Tinto shareholders, a large portion
of whom would not be expected to benefit from them as they would not be
tax-resident in Australia. This would likely leave Rio Tinto unable to pay
fully franked dividends in the longer term, which could adversely impact on
the individual tax position of Australian shareholders and on the Rio Tinto
share price in due course.

 

The economic justification for a DLC unification would therefore need to rely
heavily on Palliser Capital's flawed and unsubstantiated claim that the share
price of a unified Rio Tinto would trade up to, and ultimately surpass, the
current price of Rio Tinto Limited, despite the valuation headwinds described
above, which implies that the DLC unification would need to add c.US$20
billion of value to the Group's market capitalisation.

 

This would require shareholders to fundamentally re-assess how they value Rio
Tinto today and/or require incremental demand of tens of billions of US
dollars from Australian tax-resident investors that can benefit from (and
value) franking credits. This far exceeds aggregate volumes of equity issuance
across the entire Australian equity market each year and is many multiples of
any equity raise ever previously completed on the ASX.

 

The Board strongly rejects the misleading assertion that the DLC has resulted
in value destruction of c.US$50 billion

 

Palliser Capital's assertions of an alleged c.US$50 billion of value loss due
to the DLC structure are unfounded and misleading. This topic was not
addressed by Grant Thornton in its desk-top report.

 

Palliser Capital argues that the "inability to issue stock for M&A" under
Rio Tinto's existing DLC structure has cost shareholders c.US$35.6 billion in
value.

 

To the contrary, the DLC structure does not prevent share-based acquisitions,
as demonstrated on previous transactions by DLC acquirers, including Rio
Tinto's acquisition of Comalco, Rio Tinto's acquisition of Ashton and BHP
Billiton's proposed acquisition of Rio Tinto. As such, a DLC unification is
not required to provide the Group with hypothetical strategic flexibility.

 

Palliser Capital's assertion is based on hypothetical assumptions on how
historical acquisitions could have been funded without any consideration of
relevant factors that Rio Tinto assesses when determining how to finance
acquisitions, including our capital allocation framework and balance sheet
capacity, the expectation of shareholder returns under different funding
scenarios, and each acquisition counterparty's willingness to accept Rio Tinto
shares.

 

Palliser Capital further argues that since the formation of the DLC structure
in 1995, c.US$14.7 billion of additional franking credits would have been
utilised without the DLC structure in place. This relies on unreasonable
assumptions on sufficient incremental demand for unified Rio Tinto shares from
Australian tax-residents, and does not account for the Group likely being
unable to pay fully franked dividends in the longer term under a unified
structure.

 

The Board unanimously recommends that shareholders vote against Palliser
Capital's resolution

 

The Board is open-minded and pragmatic about ideas that are consistent with
driving sustainable long-term value for all shareholders.

 

Rio Tinto is a global mining leader, and has a clear strategy to deliver
sustainable shareholder value through attractive growth, unlocking the full
potential of its portfolio and strong cash generation. The Board believes
there is broad support from its shareholders for this strategy.

 

In particular at a time of important execution against this strategy, the
Board believes a further review of a DLC unification would be wholly
duplicative of the robust and comprehensive work and engagement recently
undertaken. As noted above, the Board periodically reviews the merits of the
DLC, and will continue to do so.

 

For the reasons set out in this statement, the Board unanimously recommends to
shareholders that they vote against Resolution 24 of the Rio Tinto plc AGM and
Resolution 21 of the Rio Tinto Limited AGM.

 

 

(1) From 21 December 1995 (when the DLC was formed) to 31 December 2024.

 

 

 

 

 

Contacts

Please direct all enquiries to media.enquiries@riotinto.com

 

 

 Media Relations,        Media Relations,               Media Relations,
 United Kingdom          Australia                      Canada

 
 
 

 Matthew Klar            Matt Chambers                  Simon Letendre

 M +44 7796 630 637      M +61 433 525 739              M +1 514 796 4973

 David Outhwaite         Michelle Lee                   Malika Cherry

 M +44 7787 597 493      M +61 458 609 322              M +1 418 592 7293

                         Rachel Pupazzoni               Vanessa Damha

                         M +61 438 875 469              M +1 514 715 2152

Media Relations,
                                                        US

 

                                                        Jesse Riseborough

                                                        M +1 202 394 9480

 Investor Relations,     Investor Relations,
 United Kingdom          Australia

 
 

 Rachel Arellano         Tom Gallop

M: +44 7584 609 644

                       M +61 439 353 948

 David Ovington

                       Amar Jambaa
 M +44 7920 010 978

                       M +61 472 865 948

 Laura Brooks

 M +44 7826 942 797

 Weiwei Hu

 M +44 7825 907 230

 Rio Tinto plc           Rio Tinto Limited

 
 

 6 St James's Square     Level 43, 120 Collins Street

 London SW1Y 4AD         Melbourne 3000

 United Kingdom          Australia

 T +44 20 7781 2000      T +61 3 9283 3333

 Registered in England   Registered in Australia

 No. 719885              ABN 96 004 458 404

This announcement is authorised for release to the market by Andy Hodges, Rio
Tinto's Group Company Secretary.

 

riotinto.com

 

Forward-looking statements

 

This announcement includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other
than statements of historical facts included in this report, including,
without limitation, those regarding Rio Tinto's financial position, business
strategy, plans and objectives of management for future operations (including
development plans and objectives relating to Rio Tinto's products, production
forecasts and reserve and resource positions), are forward-looking statements.
The words "intend", "aim", "project", "anticipate", "estimate", "plan",
"believes", "expects", "may", "should", "will", "target", "set to", "would" or
similar expressions, commonly identify such forward-looking statements.

 

Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of Rio Tinto, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements, particularly in light of the current economic
climate. Such forward-looking statements are prospective in nature and are not
based on historical facts, but rather on current expectations and on numerous
assumptions regarding Rio Tinto's present and future business strategies and
the environment in which Rio Tinto will operate in the future. Among the
important factors that could cause Rio Tinto's actual results, performance or
achievements to differ materially from those in the forward-looking statements
include, but are not limited to: an inability to live up to Rio Tinto's values
and any resultant damage to its reputation; the impacts of geopolitics on
trade and investment; the impacts of climate change and the transition to a
low-carbon future; an inability to successfully execute and/or realise value
from acquisitions and divestments; the level of new ore resources, including
the results of exploration programmes and/or acquisitions; disruption to
strategic partnerships that play a material role in delivering growth,
production, cash or market positioning; damage to Rio Tinto's relationships
with communities and governments; an inability to attract and retain requisite
skilled people; declines in commodity prices and adverse exchange rate
movements; an inability to raise sufficient funds for capital investment;
inadequate estimates of ore resources and reserves; delays or overruns of
large and complex projects; changes in tax regulation; safety incidents or
major hazard events; cyber breaches; physical impacts from climate change; the
impacts of water scarcity;  natural disasters; an inability to successfully
manage the closure, reclamation and rehabilitation of sites; the impacts of
civil unrest; the impacts of the Ukraine conflict; breaches of Rio Tinto's
policies, standard and procedures, laws or regulations; trade tensions between
the world's major economies; increasing societal and investor expectations, in
particular with regard to environmental, social and governance considerations;
the impacts of technological advancements; and such other risks identified in
Rio Tinto's most recent Annual Report and accounts in Australia and the United
Kingdom and the most recent Annual Report on Form 20-F filed with the United
States Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished
to, or filed with, the SEC. If any one or more of these risks or uncertainties
materialises or if any one or more of the assumptions prove incorrect, actual
results may differ materially from those expected, estimated or projected.
Forward-looking statements should, therefore, be construed in light of such
risk factors and undue reliance should not be placed on forward-looking
statements. Actual results, performance or achievements may differ materially
from those expressed or implied in those statements and any projections and
assumptions on which these statements are based. These statements may assume
the success of Rio Tinto's business strategies, the success of which may not
be realised within the period for which the forward-looking statements may
have been prepared, or at all. No guarantee, representation or warranty,
express or implied, is made as to the accuracy, likelihood of achievement or
reasonableness of any forward-looking statements contained in this
announcement. These forward-looking statements speak only as of the date of
this report. All subsequent oral or written forward-looking statements
attributable to Rio Tinto or any of its respective associates, directors,
officers, employees or advisers, are expressly qualified in their entirety by
the cautionary statement above. Rio Tinto expressly disclaims any obligation
or undertaking (except as required by applicable law, the UK Listing Rules,
the Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority and the Listing Rules of the Australian Securities Exchange) to
release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in Rio Tinto's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.

 

Nothing in this announcement should be interpreted to mean that future
earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily
match or exceed its historical published earnings per share. Past performance
cannot be relied on as a guide to future performance.

 

 

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