Rio Tinto Requisitioned Resolutions – Paranoia Exemplified

Yesterday (7/2/2020), Rio Tinto (RIO) issued an announcement which said that resolutions had been requisitioned by shareholders for the Annual General Meeting in May of Rio Tinto Ltd. Note that Rio Tinto has a rather peculiar corporate structure.  Rio Tinto plc and Rio Tinto Limited established a dual listed companies (DLC) structure in 1995. As a result, the two companies are managed as a single economic unit, even though both companies continue to be separate legal entities with separate share listings and share registers. We may see similar resolutions for the UK Plc company in due course as the resolutions might require a “Joint Decision”.

The first resolution is a Special one that seeks to amend the Constitution to give shareholders the right to pass ordinary resolutions that give the directors an opinion on how they should exercise their powers. But it is only an “advisory” resolution and appears to be more aimed at supporting or enabling the second resolution.

The second resolution is an Ordinary one and is worded as follows: “Shareholders request that the company, in subsequent annual reporting, disclose short, medium and long-term targets for its scope 3 greenhouse gas emissions (Targets) and performance against the Targets, consistent with the guidance of the Task Force on Climate-related Financial Disclosures. Targets should reflect decarbonisation pathways for the company’s products in line with the climate goals of the Paris Agreement”.

Readers might not know what Scope 3 emissions are, but as this issue recently came up at a local council meeting which I attended, I do know something about them. Scope 3 emissions are all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream. That’s as opposed to Scope 1 emissions which are direct emissions from owned or controlled sources and Scope 2 emissions which are indirect emissions from the generation of purchased energy.

Reporting of Scope 3 emissions would require a company to identify all the emissions made by suppliers and customers and even include such emissions as from staff travel to work. A company will in practice have no control over most of those emissions and obtaining the required information might be very difficult.

It’s basically a pointless and expensive exercise to impose such an obligation on any organisation whether it’s a major international company such as Rio Tinto or my local council, but there are many people who would like it done.

This is surely a demonstration of the extreme paranoia that is gripping the world at present over CO2 emissions with the concern that such emissions are contributing to global warming. Even it that is the case, and that argument is far from proven beyond doubt as there are other credible explanations, there is no financial justification for imposing such reporting obligations on companies. It will simply have no impact on CO2 emissions. It’s bad enough that companies such as Rio now have to report Scope 1 and 2 emissions, which incidentally are falling but not very rapidly. Note: please don’t start an argument with this writer about the reality of global warming and its threat to destroy the world. I do not have the time to explain the science of the matter to you. There are plenty of good internet resources on the subject.

As a shareholder in Rio I advise other shareholders to vote against these proposed resolutions at the company.

It seems likely though that the coronavirus outbreak in China might have a significant impact on CO2 emissions. Businesses are shutting down there and imports of oil/gas and other commodities are falling. China consumes half the world’s metals and prices have been falling as a result. It’s hardly surprising that the share price of Rio has been falling of late also.

The coronavirus threat and other similar plagues are probably more a threat to humanity on a global scale than any slight rise in the temperature.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

Exchange Market Size in Stockopedia and BHP plus RIO

I noticed that the share prices of BHP Group (BHP) and Rio Tinto (RIO) jumped this morning – at least for these behemoths of the FTSE-100 they moved substantially at 2.8% and 3.4% respectively. I only noticed because I recently purchased some of the shares in each company.

These are of course very large mining companies so they are dependent on the price of metals and metal ore, particularly iron ore. The last time I looked at these companies was two or three years ago when they were laden down with debt and had poor returns on capital. But they have certainly had a change of heart since then and seem to be more focused on generating real profits and cash flow rather than building ever bigger holes in the ground. Debt has been cut substantially in both companies.

With the profits mainly coming from overseas, they are a good hedge against any form of Brexit, and yields are high for those who like dividends. I am not a great fan of commodity-based businesses where predicting future prices of the products is not easy and they typically go through boom and bust cycles as such companies all invest in new production capacity at the same time as prices go up. Soon after when all the new capacity comes on stream there is a bust of course. But I made a small exception in this case.

But why the share price jump this morning? Are investors moving from growth to value as other commentators have suggested? Have value shares such as BHP and RIO suddenly started to look attractive, as they did to me? Or has Nigel Farage’s impossible demands for a deal with the Conservatives to ensure Brexit over the weekend suddenly encouraged investors to look for Brexit hedges?

Stockopedia have released an updated version of their “New” software. It now includes the Exchange Market Size (EMS) which is a useful parameter to look at when trading in company shares, particularly smaller ones. Note that Exchange Market Size was previously called Normal Market Size.  It is the maximum size in terms of share trade volume at which a market maker is obligated to adhere to their quoted share prices. It is a very good indicator of the liquidity in the shares and how easy they will be to trade. When trading electronically on most retail platforms, this is a useful number to know as it will affect whether you can trade automatically, have to set a limit order or get a dealer to trade for you. In addition, any trade bigger than the EMS might be done at prices higher or lower than you expect.

This number can be very small for some AIM stocks. For example on Bango (BGO) which I hold it is currently only 3,000 shares (less than £4,000 in value) when the EMS for BHP and RIO is more equivalent to £20,000 in value.

The new Stockopedia software version has other improvements although I still seem to be having problems with the Stock Alerts feature that I use every day. Perhaps there are still some issues that have yet to be fixed but you can still revert to the old version.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.