Rio Tinto Ltd (ASX: RIO) shares are in the green today, up 0.5% to $97.98 apiece.
That leaves the S&P/ASX 200 Index (ASX: XJO) miner, which also pays a dividend yield of some 10%, down 1.5% in 2022, handily beating the 12% loss posted by the benchmark index.
That’s today’s price action.
Now, here’s why this fund manager has let loose on the mining giant.
Why this fundie says there is ‘something terribly wrong’
Fund manager Willy Packer is less than pleased with the pressured resignation of Energy Resources of Australia Ltd (ASX: ERA) chairman Peter Mansell along with two independent directors, Paul Dowd and Shane Charles. The trio handed in their resignations last week.
As the Australian Financial Review reported, Packer said the situation “reeks of something terribly wrong”.
Rio Tinto is the majority shareholder in Energy Resources. The stoush centres around the Jabiluka uranium project and the Ranger uranium mine. Both projects are located in the Northern Territory’s Kakadu national park.
But any development is opposed by the local Mirarr people. That reality was said to be taken into account in the project’s independent valuation.
Packer was clearly disappointed by the resignations. And he questioned whether any mines in Australia can be properly valued when the traditional owners have not given their consent.
“All mining projects in Australia require traditional owner approval, therefore, are all highly prospective projects worth zero until approved?” Packer said.
According to the AFR, Rio Tinto had lost confidence in the ERA board members over the way they were attempting to raise funds.
Under a new loan agreement, the previous independent valuation of the project will be canned. ERA shareholders will now have to await a new valuation before any revised share issue takes place.
According to Packer, Rio Tinto “shot the messengers and the umpires” after the original ERA valuation of 15.9 cents to 24.3 cents was higher than it wanted.
Packer continued:
How can a second report be considered independent if its preparation is conditional on certain constraints? In any event, what firm would put its hand up in the future to write another valuation report knowing that if it does not appease Rio, it will have its reputation dragged through the mud.
Atop questioning what firms may be willing to take on a second valuation report for the project, Packer wondered if anyone would be “brave enough” to replace the outgoing board members at ERA:
Rio has created a toxic situation, and we question who would be brave enough to join the ERA board and take on the personal risks involved in carrying out director’s duties cognisant of the Corporation Act in relation to the oppression of minority shareholders.
How have Rio Tinto shares performed longer-term
On top of the regular, and growing, dividend stream, Rio Tinto shares have gained 43% over the past five years. That compares to a 15% gain posted by the ASX 200 over that same period.
The post Looking to buy Rio Tinto shares? Here’s why this fundie says there is ‘something terribly wrong’ appeared first on The Motley Fool Australia.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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