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Jamie Freed
April 21, 2009

NEARLY one in five Rio Tinto investors has voted against the company’s remuneration report in a revolt by Australian shareholders at the mining giant’s annual meeting in Sydney.

In the latest example of investor angst after a tumultuous year, high-profile director and Melbourne business luminary Sir Rod Eddington was returned to the Rio board despite 63 per cent of Australian shareholders voting against him. His position was assured by support from investors in Britain and China.

But new chairman Jan du Plessis promised to reach out to shareholders as a vote approaches on a proposed $US19.5 billion ($A27.5 billion) investment in the world’s third-largest mining company by Chinalco. Mr du Plessis, who will meet a group of shareholders in London next month, said he was committed to the deal.

“I will go out of my way to find out what people really think and what people really feel,” he said, after he was elected chairman, succeeding Paul Skinner.

The 400 or so mostly retail investors at the meeting could barely contain their anger over the miner’s debt-fuelled purchase of Alcan, its refusal to engage with merger proposals from BHP Billiton and its decision to turn to Chinalco to help it out of its financial quandry.

The tone of the meeting was in stark contrast to Rio’s annual meeting in Brisbane last year, when a generally satisfied bunch of shareholders had plenty of praise for their board and not one suggested the board engage with BHP.

Since then, metal prices have plunged and the Alcan purchase has weighed on the company like an albatross.

But despite shareholder outrage over the Chinalco deal, Rio did not make clear how any of the objections would lead to a change of the terms or the board’s recommendation.

From the investor reaction to date, it seems there is a chance of the proposal being voted down. Such a vote would cause serious problems for Rio, which has already signed a binding deal with Chinalco.

“For the moment, the deal is as it stands,” Mr du Plessis said. “We are waiting for the (Foreign Investment Review Board) process to complete itself. We are listening to shareholders and at the end of that we will put a package of proposals to shareholders to consider at that time.”

As shareholders vented their anger yesterday, the outgoing chairman, Paul Skinner, appeared to tacitly admit for the first time that the 3.4-shares-for-1 bid from BHP — once deemed by chief executive Tom Albanese to be “ballparks” away from fair value — would not significantly undervalue Rio in today’s market.

“Against the background of commodity and financial markets as they stood during the currency of that offer, the view of this board was that the value of our interest in any potential combination was not adequately recognised,” Mr Skinner said. “We now live in a different world, in a different state. The relative values all look different for a whole set of reasons.”

Mr Skinner also noted that, in a shareholder vote at the time, 97 per cent had supported the Alcan purchase.

The negative comments about the Chinalco deal and the board’s previous decisions — along with 19 per cent of the register voting against the remuneration report — show Rio shareholders are no longer as trusting. One shareholder asked Mr Skinner if the Chinalco deal could in time look as foolish as the decision to buy Alcan at the top of the market.

“There are no guarantees in this world,” Mr Skinner quipped. “Life would be a lot simpler if there were.”

With BLOOMBERG
http://business.theage.com.au/business/rio-shareholders-revolt-20090420-acoj.html

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