Activist investor says Rio Tinto shares could jump 27% if it dumps London listing, demands AGM motion

Activist US investor Palliser Capital is demanding Rio Tinto's (ASX: RIO) board considers scrapping its London listing and said the move could boost the shares by 27% over the near term. 

Palliser argues Rio Tinto trades at a significant discount to fair value and its mining peers due to the dual listing and said the miner's inability to issue stock for acquisitions has cost it around US$35.6 billion in book value. 

The activist that is set to put a motion forward at Thursday's annual general meeting in London also claimed Rio's shares could jump 27% over an undefined short-term period with more medium-term upside if the "value roadblock" of a London listing is unplugged.  

Part of the value uplift to Australian investors from a single listing would come from a greater ability to attach franking credits to dividends with local investors losing out on around US$14.6 billion in franking credits already, according to Palliser. 

"All we are asking is for the Board to simply conduct a full, fair, and transparent review on the merits of DLC [dual listed company] unification, which we believe to be the lowest risk, highest return form of capital allocation that the company has available today," Palliser said in a statement. 

Unlocking value

Some of Palliser's management are former employees of activist investor Elliot Management, which was instrumental in BHP Group's (ASX: BHP) decision to end its London listing in January 2022 to solely trade on the Australian Stock Exchange, although BHP's shares have edged just over 5% higher in three years since the switch.  

The pressure on Rio's board to consider the issue is thought to have seen the motion also added to its Australian annual general meeting in Perth on May 1, although the Australian Council of Superannuation Investors is said not to support an end to the dual listing. 

Palliser says it has the support of influential shareholder advisory groups ISS and Glass Lewis for its motion demanding Rio's board review its dual-listing with regard to tax optimisation, capital efficiency, cost savings and enhanced shareholder returns. 

Rio Tinto shares slumped 4.8% on Monday and are up 29.9% over the past five years, versus a 41.4% five-year return for BHP, which is betting heavily on copper as a key ingredient in the energy transition. 

Rio also has significant copper interests and is investing heavily in lithium as a key battery ingredient. Notably, BHP has so far avoided lithium, and that is thought to be because it thinks the market is likely to be oversupplied as prices for the commodity continue to struggle.