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Palliser Capital wants Rio Tinto to become a wholly Australian company with a primary listing on Australia’s stock exchange

First BHP Group ended its primary listing in London. Then Glencore said it is studying a move elsewhere. Now, Rio Tinto shareholders will decide whether to step up pressure on the mining giant to junk its decades-old dual listing in London and Sydney.

Thursday’s vote in London at Rio Tinto’s annual shareholder meeting will test support for a change that has been championed by Palliser Capital, an activist investor. Palliser argues the status quo drags on Rio Tinto’s value by restricting the miner’s ability to pursue stock-based deals and fully utilize its Australian tax credits, which the miner denies.

Palliser wants Rio Tinto to become a wholly Australian company with a primary listing on Australia’s stock exchange. It is asking shareholders in London and Sydney to vote their holdings in favor of an independent review of the corporate structure. Rio Tinto’s equity holders in Australia will get their say on May 1 at which point the vote outcome will become known.

Already the campaign is dividing shareholders and Palliser’s resolution needs 75% to pass. Among those supporting Rio Tinto’s position is Norges Bank Investment Management, the manager of Norway’s sovereign-wealth fund, which owns around 2% of the miner’s stock. California Public Employees’ Retirement System, or Calpers, has a different view and is keen on a review.

A big uncertainty is whether Rio Tinto can resist a review should the resolution garner significant support—even if it fails to pass.

Barclays identifies key thresholds to watch. Support for a review from 20%-50% of shareholders would prompt Rio Tinto’s board to engage more, but isn’t likely to shift its opposition to another review after it did its own study a year ago, it says. More than that, however, and Rio Tinto might feel obliged to accede to Palliser’s request.

Rio Tinto is made up of two companies: Rio Tinto PLC RIO 1.48%increase; green up pointing triangle in the U.K. and Rio Tinto Ltd. RIO -1.42%decrease; red down pointing triangle in Australia. They are separate legal entities but share a common board and single management team. The London stock accounts for about 77% of shareholders, but the company today makes most of its money running mines in Australia.

Rio Tinto is valued at roughly $100 billion, and produces commodities ranging from copper and iron ore—which dominates its profits—to lesser-known critical minerals including tellurium, used to make solar panels. It recently became one of the world’s top lithium producers through the $6.7 billion acquisition of Arcadium Lithium.

“All we are asking is for Rio to conduct a transparent review on unification and publicly disclose those findings so that shareholders can make an informed decision on the merits of unification,” Palliser founder and Chief Investment Officer James Smith said.

Palliser’s campaign is backed by shareholder advisers Glass Lewis and Institutional Shareholder Services, or ISS. Passive investors typically vote in line with proxy advisers’ recommendations.

In a letter to shareholders last month, Rio Tinto Chairman Dominic Barton said the miner strongly disagrees with ISS’s reasoning for its support of a review. That included a reliance on the precedent set by BHP that he said fails to recognize their differences.

“At the time of BHP’s unification and associated petroleum division spin-off, only approximately 5% of its earnings were contributed by its PLC company,” Barton said. “In contrast, almost all of Rio Tinto’s non-Australian assets, including major growth projects, are held under its PLC company.”

The Australian Council of Superannuation Investors, which represents several large pension funds, argues there is currently no compelling reason to vote for an independent review.

Key parts of the debate include which structure works better for so-called franking credits, a peculiarity of Australian investing, and whether unification would boost value for shareholders in London, where the stock trades at a persistent discount primarily because of those tax credits afforded to Australian investors.

“We acknowledge that the structure is not ideal but believe Rio Tinto is at an exciting strategic point and want to see the management team focused on operational delivery,” said George Cheveley, a portfolio manager at Ninety One, which has a roughly $120 million stake in the miner.

Some investors even don’t mind if Rio Tinto’s structure limits its dealmaking ability. Global miners have regained an appetite for mergers and acquisitions, but big deals often require big premiums—as BHP found when it unsuccessfully pursued a $50 billion bid for Anglo American last year.

“As shareholders, we like the DLC as it makes large-scale, scrip-based M&A—as per the recent [proposed] BHP and Anglo deal—harder to undertake,” said Stephen Butel, a Sydney-based portfolio manager at Platypus Asset Management. It hasn’t fixed on which way it will vote.

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Small arms

EU leaders are facing demands to ensure that small defence businesses benefit from the bloc’s splurge in military spending as countries and companies outside the big league worry about missing out, write Barney Jopson and Patricia Nilsson.

Context: European governments are preparing to cast off their fiscal shackles, as a consensus hardens around spending more to end the continent’s security dependence on the US. But with the money come tough questions about which companies get to enjoy the bonanza.

The defence sector is dominated by big players such as Germany’s Rheinmetall and France’s Thales, but Portugal’s defence minister has called for the EU to make room for others.

Nuno Melo, defence minister in a government facing elections in May, told the Financial Times that start-ups and small and medium-sized businesses were “key drivers of innovation” in defence, and needed three things from EU policymakers.

First, he said, Brussels must increase the involvement of small businesses in defence supply chains. Second, it should support initiatives to integrate them into the big projects, such as new fighter jets or navy destroyers. Third, it must “facilitate access to venture capital and reduce bureaucratic hurdles”.

EU defence ministers are meeting in Warsaw today and tomorrow to discuss rearmament, as well as sending more support to Ukraine.

In Germany, smaller contractors are complaining that since Russia’s full-scale invasion of Ukraine — and Germany’s decision to respond with a €100bn military fund — most money has been spent on aircraft, tanks and other big-ticket items made by larger companies.

“We’re told that we’re delivering critical capability to Germany, EU and Nato and that we should scale up”, said Martin Karkour, chief sales officer at Bavarian drone start-up Quantum Systems. However, to do so they need concrete orders, he said.

While the company has delivered more than 1,000 drones to Ukraine since the outbreak of the war, the German army has so far only ordered 14 units.

The trickle-down matters politically. In Portugal, the government wants to win popular support for more defence spending by arguing that it will boost industry more widely. Spain’s government is making a similar pitch. Both countries’ defence sectors are primarily composed of small businesses.

In Germany, Karkour senses a boost is finally coming for such companies through Berlin’s decision to scrap strict debt rules and unleash more defence spending. “We are starting to see a changed mentality”, he said.

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