Rio Tinto wants to avoid creating tension between Australia and China in finding a way forward to launch buybacks
The mining giant’s boss Jakob Stausholm wants to avoid creating tension between Australia and China in finding a way forward to launch buybacks.
Rio Tinto chief executive Jakob Stausholm wants to avoid creating tension between Australia and China in finding a way forward which would allow the company to launch share buybacks.
Any share buyback is currently fraught because Chinese state owned-entity Chinalco is on the cusp of the maximum 14.99 per cent shareholding permitted by the Australian government.
Mr Stausholm said he did not expect any problems with approvals for Rio’s near $10bn takeover of New York-listed Arcadium Lithium because of Chinalco’s shareholding, and spoke positively about opportunities presented by Donald Trump’s return to the White House.
Dual-listed Rio is considering a share issuance to help cover the cost of the Arcadium acquisition.
Mr Stausholm said a share issuance was an option on the table after a big bet on lithium, which will push Rio’s net debt levels to about $US12bn.
“We have confirmed our credit rating, so it’s not something we have to do, but it’s something that’s worthwhile considering,” he told investors on Wednesday night.
One of Mr Stausholm’s goals is to have more of Rio owned on the ASX, in recognition about 77 per cent of the company’s value is traded on the London exchange under the dual listing structure.
“We could perhaps strengthen the Australian register at some stage, that is one of the things we are looking at,” he said, fuelling speculation about an issuance on the ASX.
On the issue of share buybacks, Mr Stausholm said Rio wanted to have the capital management device up its sleeve, but the Chinalco shareholding was a sticking point.
“We don’t want to create a geopolitical tension between China and Australia,” he said.
“We note with pleasure that the relationship between the two countries has improved a lot. I am certainly very committed to try to find a solution. It’s in the company’s interest that we, without having any problems, can do share buybacks. I have not delivered on that yet. It is definitely on my list.”
Mr Stausholm said Rio’s relationship with Chinalco had reached a stage of “constructive co-operation” and strengthened through their partnership in the $34bn Simandou iron ore project in Guinea, set to start production at the end of 2025.
Rio swatted away a renewed call from hedge fund Palliser Capital to ditch its dual listing structure, timed to coincide with an investor seminar in London.
Palliser Capital claims there is a compelling case for Rio to become a single Australian-domiciled company.
Mr Stausholm hit back, saying: “It just does not make any economic sense, that is the very simple fact.
“I’m surprised about that (Palliser) announcement because I actually accepted to take a meeting this afternoon with the shareholder despite the fact the shareholder is a very small shareholder, so it would not normally have a meeting with management.”
Rio’s ASX-listed shares have traded at a 25 per cent-plus premium to the London shares at times this year, the widest gap in more than a decade.
Analysts suggest the share price would sit somewhere in the middle under a single listing, while a share issuance on the Australian side has the potential to dilute the value of the ASX shares.
Mr Stausholm said Rio was comfortable with its growth projects in copper, hosing down suggestions Rio could become involved in any bidding war for copper assets with BHP, which is now free to make a renewed takeover bid Anglo American.
“It’s so expensive to buy copper right now,” he said. “As a shareholder, I would feel … there could be some downside to that (becoming involved in M&A).”
Rio outlined what Bank of America analyst Jason Fairclough described as “monster” growth plans in the currently oversupplied lithium market.
The Rio leap of faith on a price turnaround includes creating what it described as three super sites in Argentina and building out projects in South America and Canada acquired from Arcadium.
The Rincon project in Argentina made history for the company last week in producing the first lithium, with Rio now poised to invest to boost production to 60,000 tonnes per year.
Undaunted by Australian producers shutting down mines and shelving projects, Rio foreshadowed producing 225,000 tonnes per year of lithium carbonate equivalent from assets in South America and Canada by 2028 and 460,000 tonnes by 2033.
