Owners of Rio Tinto Ltd (ASX: RIO) shares may like to know about a possible move with its corporate structure that could unlock enormous value.
There is no confirmation that the ASX mining share is working on a plan yet, but growing market noise could suggest it's being considered.
Rio Tinto has an interesting corporate structure where Rio Tinto plc (LSE: RIO) – listed in London – and Rio Tinto Ltd are two separate companies.
Interestingly, Rio Tinto Ltd shares trade on a valuation that's around 20% higher than the UK-listed entity. The Australian Financial Review suggested investors have been willing to pay more for the ASX-listed entity because of the benefit of franking credits, which are only available for Australian tax residents.
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Should Rio Tinto copy its rival?
It wasn't too long ago that BHP Group Ltd (ASX: BHP) decided to consolidate its corporate structure to Australia, and some investors believe Rio Tinto could benefit from doing the same.
According to reporting by the AFR, Blackwattle Investment Partners fund manager Ray David thinks Rio Tinto could unlock up to $40 billion in value if it copies BHP's move.
Rio Tinto has made a number of changes in recent years including improving its relationships with government, traditional owners and shareholders after the Juukan Gorge incident.
David thinks Rio Tinto making a change to its corporate structure would be the "next step" in improving its corporate governance.
The AFR reported that David wrote a five-page letter to the Rio Tinto board in May, in which he said:
We contend that the dual-class structure is antiquated and advocate for a shift towards a single-class structure, in line with best corporate governance practices and the interests of all shareholders.
Blackwattle would profit if a restructuring occurred because it owns the UK-listed shares. UK Rio Tinto plc shares would benefit if Rio Tinto Ltd bought the UK-listed shares in an all-share deal, and every shareholder could gain from the improvement in capital allocation and simplification benefits that a combined Rio Tinto would deliver.
The AFR reported David said Rio Tinto's dual-listed company structure is restricting its ability to pursue share/scrip-based acquisitions. About three-quarters of Rio Tinto's shares are owned by Rio Tinto plc.
Rio Tinto also reportedly can't do much with share buybacks at the moment because China's Chinalco owns 14.6% of Rio Tinto plc and is restricted from owning more than 14.99% of Rio Tinto.
ASX mining share's response
The AFR reported on comments of a spokesman from the ASX mining share who said:
We regularly look at a range of corporate and strategy topics with a focus on optimising shareholder value and delivering for our stakeholders, and we have a policy of open dialogue with all shareholders around these topics.
Time will tell whether that's a hint that the ASX mining share is considering it.
Rio Tinto share price snapshot
Since the start of 2024, the Rio Tinto share price is down 12%, as shown on the chart below, compared to a rise of 2% for the S&P/ASX 200 Index (ASX: XJO).
