Rio Tinto 2006 AGM transcript

January 22, 2009

Stephen Mayne: Chairman, Stephen Mayne, shareholder. With these buy-backs we often have a situation with the DLC where you've got stock trading at different value in London and in Australia. We've seen Brambles unwind their DLC. I think it's important in the context of buy-backs, where you do get this opportunity for arbitrage and hedge funds to manipulate the price because it is trading in different jurisdictions.

What is your approach to the way you handle the buy-back, do you, or buy-backs across the two listed stocks? Do you always go for the cheapest stock, depending on what the hedge is and the arbitragers are doing, or do you try and spread the largesse around, according to the PLC or the Australian stock? And do you think that the DLC structure really is appropriate given the distortions that we see in the market, and the way you get the differential pricing, and why don't we go down the Brambles' route so we don't have this sort of complexity, confusion and distortions when the buy-backs occur?

Chairman: Thank you very much for the question. I'd like to make one or two general comments and leave Guy Elliott, our finance director to add any point of detail which he thinks would be helpful to your question. But the first comment I'd like to make is that our DLC structure, which was put into place in 1995, and therefore past its tenth birthday last year, I think has met all its original objectives and has proved to be a very robust structure in the best interests of shareholders. And certainly given that we're in Australia and I think it's been of very positive interest and value to Australian shareholders.

Turning to your specific question about the prioritisation of our buy-backs, as a general trend we would always elect to buy back the cheapest share at the time. I suppose there could be circumstances where we might do things differently, but that would be our general stance. Do you wish to add to that, Guy?

Guy Elliott:
Well let me just add that we did make, of course, a very big buy-back in Australia last year when we... [interjections].

Let me repeat what I said, which is that we made a substantial buy-back in Australia last year when we bought back, off-market, a billion Australian dollars worth of shares. Now, we haven't bought back any on-market limited shares since we started the process of buy-backs, because for most of that period the price of the limited stock has been higher than the price of the plc stock.

But I don't think that says anything about a problem with DLC. We think that the DLC is working extremely well and we've got absolutely no plans, of course, to unwind it, whatever may have happened in other companies. So we think that the present system works very well.

Chairman: Thank you, Guy.

Stephen Mayne:
Chairman, Stephen Mayne again. I'd like to speak against the election of Sir Rod Eddington, And it goes to a question of credibility and his role as an independent governor of this company, and his role in standing up for small shareholders, independent shareholders and taking a different view from management.

And I say this in light of what happened with News Corporation last year when Rupert Murdoch reincorporated the company and moved it to the US promised he would not introduce a poison pill; promised before the NSW Supreme Court not to do that.

He then moved to the US and promptly did exactly that. He broke his word and this was a classic example of failure by independent directors of which Sir Rod was probably the leading example on the News Corp board.

So my concern is that if he's breached the trust on News Corp in such a flagrant way, and a group of global institutions sued News Corp in Delaware over this and News Corp got rolled, a settlement was announced about a month ago, how can we trust him on Rio Tinto?

I mean for mine it's a major black mark against his name that he failed to stand up for the independent shareholders in a major multinational like News Corp, and now you've just willy-nilly invited him onto this company when you should have looked at that and said no, black mark, we're not having him.

So I'm speaking against this resolution today, I'll be voting against it and I also think that it's inappropriate that all of these resolutions are going to a poll, because people who stand here today take the trouble of coming to the meeting and listening to the debate don't get to express their view.

So, people who hear these arguments, the sentiment of the meeting won't be reflected because you've just gone straight to a poll where the faithful institutions have all voted 48 hours ago, have dictated the results.

So I think next time you should consider having a show of hands, to respect the shareholders who turn up at the meeting and listen to the debate and I'd encourage other shareholders here to take a stand against Rod Eddington for the behaviour that he demonstrated at News Corp last year.


Chairman: Thank you for your remarks. The first thing I would like to say and say to everybody in the room is that your vote counts. You have an opportunity at the end of the meeting to vote on all resolutions.

We do take our polls at the end of the meeting because a number of them relate to joint voting activity with polls that are already taken in London, but clearly, as has just, I think been demonstrated the sentiment of an individual shareholder can be quite effectively communicated to the room without necessary hand waving, but thank you for that.

I'd like also to say that Rod's appointment to this board could hardly be characterised as willy-nilly. We have a very thorough board appointments' process in place; a nomination committee, which very carefully considers the skills and requirements of this board to ensure that it functions effectively in your best interest as the shareholders.

Sir Rod passed fully through that process. I'm in no position, nor would it be appropriate to comment on the affairs of News Corporation, which are nothing to do with this meeting. You mentioned for example their relocation to the United States.

I spoke earlier of a ten year DLC that has been operating which roots us firmly and proudly in Australia, and to be honest to have someone of Rod's capability, who I regard as a very fine Australian, as a member of our board is something we reviewed entirely positively.

You are certainly entitled to your opinion; you're certainly entitled to your vote, but believe me this was not a superficial process and we're very pleased to have him on our board.


Stephen Mayne:
Chairman just a brief comment on the process here; I think you're treating small shareholders like...

Chairman: Could you speak up a little bit?

Stephen Mayne:
Just a brief comment on the process here. Normally you have general debate at the start. Okay you've turned that around. Then you haven't gone for a show of hands. You're not showing us the proxies as we go.

I mean normally best practice at AGMs is that you have a debate, then you have the proxies put on the screen and then you have the show of hands. Now okay you've gone for a poll so we don't get a sentiment from the room here. But can you perhaps put the proxies up after each debate so we can just see what the institutions think?

I'd like to see if the institutions who took the fight to Rod over News Corp have expressed a protest today? I mean you've blithely come along here and said, oh, we just got rolled on the changes to our constitution. That's only about the second or third time in corporate history in Australia that that's happened, on a non-pay resolution.

I mean this is a shock that Rio Tinto has been rolled on a resolution at an AGM and it's just sort of like oh yeah, it's a bit of a problem. We'll go to the next resolution.

Well can you perhaps tell us the proxies at least, as they came in? So how much were you rolled by in this historic day when you've been rolled, and can you tell us the proxies on the other resolutions as we go so this isn't too much of a dead rubber and a non-event and we just don't get treated like mushrooms?


Chairman: Thank you for your colourful commentary. [Interjections]

I do apologise, I was thanking the last speaker for his colourful commentary. I have to tell you that when I got up this morning I didn't feel rolled, I may have eaten one but I didn't feel like one.

And I think that I hear your comments, but it is not our practice to publish proxies during the meeting and I'm not sure if a particular purpose will be served by that; you will see the votes on resolutions addressed at the meeting published subsequently.

On the specific matter to which you refer some of the constitutional changes that were incorporated in a resolution at a very late stage – only a matter of a day or so ago – we saw emerging a distinct difference in the voting pattern between votes cast at our London AGM, and the indications that were appearing here. And we took the view there was something here that we didn't fully understand and that it would be appropriate to wait for a little time to consult with some of the shareholders concerned to seek to understand it.

I think that's a perfectly reasonable process. We are a listening company; we're not a company that's in the business of trying to force any business through a meeting. So thank you again for your comments and everybody in the room has heard them.

So if I may I'll move on to the next resolution, which relates to the election of Leigh Clifford – Leigh would you mind just standing, although you already have.

Leigh, who I think is known to all of you, became chief executive in 2000, having been a director of Rio Tinto plc since 1994, and Rio Tinto Limited since 1995.

He graduated from the University of Melbourne as a mining engineer and gained a Master in Engineering Science from the same university. He's held various roles in the Group's coal and metalliferous operations since joining in 1970, including managing director of Rio Tinto Limited and chief executive of the Energy Group.

He was a member of the Coal Industry Advisory Board of the International Energy Agency for a number of years, and its chairman from 1998 to 2000. He is a former director of Freeport, McMoran Copper and Gold Incorporated and is a non executive director of Barclays PLC and Leigh is 58 years old.

Stephen Mayne:
Just quickly Chairman. I think the ASA has got the tiger by the tail a bit there. Leigh is our CEO. He's done a great job. The share price has tripled quadrupled. You don't want to vote the CEO off a board when he's done a great job. So I think if there's an issue may be we should run a campaign to vote him off the Barclays board, but we shouldn't vote him off our board.

And the other point is that under Australian law, CEOs don't actually have to go up for election in the three yearly rotation. I mean Rupert Murdoch wasn't elected to Newscorp for 45 years under that exemption.

So I think Rio should be congratulated for one, putting him up for election when Sol Trujillo and so many other CEOs opt out, under the law, and two, we should emphatically re-elect him because he's done a great job.

Chairman: I'm going to take all the good news coming from that quarter.

Stephen Mayne:
Just a couple of quick ones Mr Chairman. Can you clarify any ongoing commercial relationship that we have with Cazenove where David hailed from?

Also, the banking relationship with Barclays? Quite famously, National Australia Bank put a board together a few years ago which was basically a sinecure for CEOs of client companies. If you looked at the board, NAB was the major banker and they all got a reward with being on the NAB board. A pretty odd way to put a board together and it wasn't surprising that it all fell apart.

So, have Barclays put Leigh on the board because Barclays have lent us $20 billion [unclear] margins, or is it a completely arms-length relationship?

I know this one is not on the resolution, it's not up for debate today but it does relate to a board issue.

Ashton Calvert was Secretary of the Department of Foreign Affairs and Trade –

Chairman: I'm taking questions on this resolution or matters related directly to it –

Stephen Mayne:
Right, well I will come to that too –

Chairman: You were talking about - you started with David Mayhew and his position with Cazenove. That I think is a reasonable question in the context of this resolution, but now you're going on a walk.

Let me just clarify the position. David is Chairman of JP Morgan Cazenove, who provide broking services to Rio Tinto, have done for many years, and have done very effectively. David is therefore not considered an independent director of this Board as a resultant of that relationship. I think that's the position as far as he is concerned.

You then, I think, reverted back to Leigh and got into the sweetheart suggestion mode about relationships between Rio Tinto and Barclays.

Let me make one general point about all of these questions about relationships with other companies. We do test very rigorously and very thoroughly, all matters which could be judged material, inasmuch as they impact on the independence of any of our directors, i.e. if there is a large commercial buy/sell contract or other provision of services, I don't think that anything we may do with Barclays remotely approaches that level, but I will ask Guy Elliott, who is our Finance Director, if he could make any supplementary comments which may give a perspective to my response.

Guy Elliott: Barclays is one of our core banks - that's about a dozen or 15 banks that we have - who offer us back up credit lines. They also have at various times made project debt available to us and various other banking facilities, but I can assure you that those are very much at arm's length, and there is absolutely no suggestion at all that there is any impropriety as between us and Barclays. To the contrary. It is an ordinary commercial relationship which has been longstanding for us, for as long as I've been in this company, which is quite a few years.

Chairman: Thank you Guy.

Stephen Mayne:
Chairman, you're all making a fortune which is great because the shares are going up and everyone's happy. With these Remuneration Reports over the last few months, that only came in last July, what's tended to happen is that the proxy advisers, Institutional Shareholder Services and Corporate Governance International are the kingmakers here, and if they recommend a vote against, then it gets pretty hairy, and they've obviously knocked you over on that change to your Constitution.

Can you please, on this resolution, tell us the proxies and tell us whether there has been any concern from the professional investors? I mean we're all small shareholders. It's very complex. We don't know and we're just left in the dark if we don't get to see the proxies and you don't tell us if there has been an issue that's blown up with the big shareholders.

And you know if you're over 15/20 per cent no vote on this then you've got a bit of a problem. There's something wrong in your hurdles or there is an issue. If you're five per cent or thereabouts everything's great and no one should worry.

So it just cuts to the chase if you tell us the proxies and if you tell us if there was an issue with the professionals, who understand these issues, and then we can move on, if there's no problem, or you can tell us about it if there is a problem.

So can you tell us the proxies, any concerns from the proxy advisers, any dialogue with the institutions and then we don't have to have a long debate where we're all sort of flailing around in the dark.

Thank you again.

It's a pity in a way you feel that you have to reply on the institutions to reach your own conclusions on part of the report, but fair enough, they do perform a helpful role I guess in that regard.

But my answer is the same. We're not going to reveal proxy votes in advance of our announcement of the final outcome of the poll. You always get a good indication, of course as, to how this has gone from the way in which an earlier meeting has gone on in the plc and this is one of those high resolutions where, when you see the numbers, and you will see them published shortly, you will see, unlike the resolution I referred to earlier, a pretty close alignment with that of the Remuneration Report.

But our practice is not to offer the proxies in advance at this time.

Stephen Mayne:
Mr Chairman this will take about five minutes and then I'm done. A few back and forths, and some quick questions and answers please.

You won't be disclosing the proxies on resolution three because you've withdrawn the resolution. You needed 75 per cent to get it supported, you didn't get it. What was the against vote on the proxies which were lodged with you 48 hours ago when the voting closed?

That's a question I'm not going to answer.

Stephen Mayne:
So we've just had an election here, and someone said, oh, I'm going to lose, let's call the…

That's your interpretation. Thank you very much for it, it's very generous of you, but it's not ours.

Stephen Mayne:
You are treating shareholders like mushrooms. You know the information, you're not going to tell the Stock Exchange, and we've gone to the trouble to come today, 500 of us. Jean's flown down from Sydney. She's mentioned transparency, and you are sitting on the information unfairly. Completely unfairly.

You know the figure, Computershare or whoever the register is knows the figure. You've been involved, just tell us the scale of it.

Thank you for your comment. Next?

Stephen Mayne: [off microphone] that $280 million to say the same. The Secretary of DFAT for the entire period that that happened, is Ashton Calvert, who's sitting on our Board. Will you take into consideration the conclusions of the Cole Enquiry, when you consider the ongoing composition of the Rio Tinto Board?

I think we are always alert to the circumstances of any of our directors in alternative roles. Ashton Calvert retired from the role which you mentioned. To the best of my understanding, he has not been involved in any investigative or inquiry process which would suggest to us that this is a matter of concern for Rio Tinto.

Stephen Mayne:
Okay. This is one on Shovelanna and one on the finances of Freeport.

Chairman: You really are sort of being a bit greedy if I may say so in terms of the number of questions that you're asking, but let's see if we can give you short answers to what I hope will be short questions.

Stephen Mayne: Okay. With Freeport, we sold 13 per cent for $882 million in March 2004. The market cap of that's now about $1.3 or $1.4 billion. So we left $500 million or $600 million on the table by getting out.

We got pressured, I think, from what I can tell from the press, into getting out of our Indonesian coal assets in 2003. We sold to the appropriately titled Social Welfare Minister, Bakrie for $500 million, and he's just dumped his stake in Bumai Resources for US$3.2 billion. It looks like we've been pressured into a sale there and we've left a huge amount on the table.

With commodity prices at record highs, why don't we just get out of Freeport in Grasberg? Why don't we sell … what is the process to selling? I know it's not a listed stake. What's the situation with pre-emptive rights? Can we sell, because frankly a lot of people here are uncomfortable with what's going on?

The gentleman who spoke before who is one of the refugees. The Australian Government has ruled that it's not safe for him and his colleagues to return to West Papua. In other words, there's a heck of a lot of military brutality going on there, and we're - you know it's pretty ugly - and we're tied up in it.

So, I think the most appropriate thing for Rio to do would be to exit, and it's a great time to exit given prices. And so can you explain whether you've considered that, given your partial exit two years ago, and what the process is for exiting, as to whether it's an easy process? And also, a brief summary on whether we made any money out of our exposure over the last 10 years to Freeport?

Chairman: I'm going to answer that very briefly. We did sell our shareholding in Freeport itself two or three years ago, and we held that for a period of a number of years. Our exit was at a significant profit, and I think we feel very satisfied with that.

You can always argue that, subsequently, prices may have risen a bit and that the sad thing about markets is that nobody rings a bell when you reach the top, but we all do our best.

We do have a continuing economic interest in the Freeport production joint venture. It's a 40% interest. It is a profitable business. We do, and I won't repeat everything, make a considerable effort to ensure that the best that Rio Tinto can offer to Freeport in the management of that venture is available to them.

If we were to reach ever, hypothetically a conclusion of wishing to disengage from that operation, there are provisions under which we could do that, which I don't intend to discuss in detail because a number of them have a commercial confidentiality attaching to them.

That I think probably is…all right, this is the last.

Stephen Mayne:
Shovelanna. Congratulations on the way we've clawed back our stake in the tenements at Shovelanna and fixed up Cazaly. Terrific result for shareholders. Congratulations.

Just curious, how did you do it? I mean magnificent. The pundits said you wouldn't do it, the Cazaly share price said you wouldn't do it. Masterful. Excellent, and any insights as to how you did it, because it was a fabulous outcome for shareholders and we're all very much appreciative of the effect and the power of the lobbying machine that we must have?

Thank you very much. We didn't actually do much other than represent the facts of the situation to the Western Australian Government. We certainly didn't attempt any pressuring or lobbying of them in this particular matter.

It's quite interesting, and perhaps the perspective of reporting of some of these things is not always accurate. We had paid the money for this renewal to a Government agency a month ahead of the events which introduced Cazaly to the situation, and the Government had happily banked it, so we were hardly asleep or failing to be alert to the requirements of renewal.

I don't think I have very much to add to the rather comprehensive statement which the Minister for Resources in Western Australia made. He clearly took a view, which was that this resource was best developed by Rio Tinto in the long term interest of the ultimate resource holder which, of course, is in this case the Government of Western Australia. I can't really explain it, but needless to say, we are encouraged and satisfied by the outcome.