[Federal Register Volume 76, Number 247 (Friday, December 23, 2011)]
[Notices]
[Pages 80430-80433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32922]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29889; 812-13777]
Rio Tinto plc and Rio Tinto Limited; Notice of Application
December 19, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 3(b)(2) and 45(a) of the
Investment Company Act of 1940 (the ``Act'').
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SUMMARY: Summary of Application: Rio Tinto plc (``RTP'') and Rio Tinto
Limited (``RTL'', together with RTP, ``Rio Tinto'' or the ``Group'')
seek an order under section 3(b)(2) of the Act declaring Rio Tinto to
be primarily engaged in a business other than that of investing,
reinvesting, owning, holding or trading in securities. Rio Tinto is a
leading international mining group. Applicants also seek an order under
section 45(a) of the Act granting confidential treatment with respect
to certain financial and other information.
Filing Date: The application was filed on May 27, 2010, and amended
on December 16, 2010, and July 1, 2011.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on January 13, 2012, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090. Applicants, RTP, 2 Eastbourne Terrace,
London W2 6LG, United Kingdom and RTL, ABN 96 004 458 404, Level 33,
120 Collins Street, Melbourne, Victoria 3000, Australia.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
calling (202) 551-8090.
Applicants' Representations
1. Rio Tinto is an international business involved in each stage of
metal and mineral production including finding, developing, mining and
processing natural resources such as aluminium, copper, coal, iron ore,
uranium, gold and industrial minerals. Rio Tinto is a dual-listed
company (``DLC'') comprised of two distinct, commonly controlled
corporate entities, RTP and RTL, which operate pursuant to a DLC
Sharing Agreement (the ``Sharing Agreement'').\1\ RTP is a foreign
[[Page 80431]]
private issuer organized under the laws of England and Wales with
ordinary shares listed on the London Stock Exchange and Euronext and
American Depositary Receipts (``ADRs'') traded on the New York Stock
Exchange. RTP's ordinary shares and ADRs are registered under section
12 of the Securities Exchange Act of 1934 (``Exchange Act''). RTL is a
foreign private issuer organized under the laws of Australia with
shares listed on the Australian Securities Exchange and traded on the
over-the-counter market in the United States. RTL's shares are also
registered under section 12 of the Exchange Act; it has no ADRs issued
or outstanding. RTP historically held a controlling interest in RTL but
no longer beneficially owns (directly or indirectly) any shares of RTL.
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\1\ Applicants identify the following key principles of the DLC
structure: (a) RTP and RTL are each required to have a ``special
voting share'' that enables shareholders of both RTP and RTL to vote
on key decisions on a joint basis; (b) dividends and capital returns
are equalized via a ``DLC Dividend Share'' so that shareholders of
each company are effectively in the same economic position as if
they held shares in a single enterprise; (c) each of RTP and RTL has
a separate but common board of directors, and the directors are
authorized to do anything necessary or desirable to maintain the DLC
structure; (d) each of RTP and RTL is subject to local laws and
listing obligations; (e) for the protection of creditors, RTP and
RTL have each executed a deed poll guarantee pursuant to which they
each guarantee certain contractual obligations of the other; and (f)
there are protections in the constituent documents of each of RTP
and RTL with respect to potential ``change of control'' events so
that a person could not take over or gain control of one company
without also making an offer for the other company.
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2. Although RTP and RTL are two distinct corporate entities with
separately traded securities, applicants state that pursuant to the
Sharing Agreement, each company is required to operate, as far as
possible, as if the two companies and their respective subsidiaries
were a single enterprise, and holders of RTP and RTL shares have shared
rights between them. Applicants state that the DLC structure places the
shareholders of both companies in substantially the same position as if
they held shares in a single enterprise owning the assets of both
companies. The practical effect of the DLC structure has been
recognized by Rio Tinto's primary regulators. RTP and RTL file with the
Commission a combined Annual Report on Form 20-F with combined
financial statements which treat RTP and RTL as a single group.
3. Applicants state that out of an abundance of caution and a
concern that RTP, RTL and/or Rio Tinto could be classified as an
``investment company'' under section 3(a)(1)(C) of the Act, Rio Tinto
has viewed certain transfers of cash between RTP and RTL as creating
``intra-group receivables'' which are treated as either ``investment
securities'' on the balance sheet of the subsidiary distributing the
cash or as ``investment income''; this is despite the fact that the
cash being distributed is derived from Rio Tinto's operations and
absent the DLC structure would not raise concerns under the Act.
Applicants further state that Rio Tinto currently actively monitors the
movement of funds between subsidiaries in order to maintain RTP's and
RTL's status under the Act and that such treatment is limiting Rio
Tinto's ability to fund its operating activities in a tax- or capital-
efficient manner. Applicants state that in order to adequately fund Rio
Tinto's operations and successfully compete in the mining industry, Rio
Tinto needs the financial flexibility to freely move funds between
subsidiaries in the DLC structure and to quickly capitalize on new
opportunities as they arise. Although each of Rio Tinto, RTP and RTL
believes it is excepted from the definition of ``investment company''
in section 3(a) of the Act by virtue of section 3(b)(1), each is
seeking to reduce any uncertainty about its respective status by having
RTP and RTL seek an order of the Commission pursuant to section 3(b)(2)
of the Act.
Applicants' Legal Analysis
1. Section 3(a)(1)(A) of the Act defines the term ``investment
company'' to include an issuer that is or holds itself out as being
engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting or trading in securities. Applicants state that
Rio Tinto has not and does not hold itself out as being engaged
primarily, or propose to engage primarily, in the business of
investing, reinvesting or trading in securities within the meaning of
section 3(a)(1)(A) of the Act.
2. Under section 3(a)(1)(C) of the Act, an issuer is an investment
company if it is engaged or proposes to engage in the business of
investing, reinvesting, owning, holding, or trading in securities, and
owns or proposes to acquire investment securities having a value in
excess of 40 percent of the value of the issuer's total assets
(exclusive of Government securities and cash items) on an
unconsolidated basis (``asset test'').\2\ Section 3(a)(2) of the Act
defines ``investment securities'' to include all securities except
Government securities, securities issued by employees' securities
companies, and securities issued by majority-owned subsidiaries of the
owner which (a) are not investment companies, and (b) are not relying
on the exclusions from the definition of investment company in section
3(c)(1) or 3(c)(7) of the Act. Applicants state that as of December 31,
2010, the percentage of RTP's total assets on an unconsolidated basis
(exclusive of Government securities and cash items) which were
``investment securities'' as defined in section 3(a)(2) of the Act was
approximately 9.1% and the percentage of RTL's total assets (exclusive
of Government securities and cash items) which were ``investment
securities'' was approximately 29.2%. Applicants further state that
assuming RTP and RTL are treated as a single company for the purposes
of testing under the Act, as of December 31, 2010, the percentage of
Rio Tinto's total assets (exclusive of Government securities and cash
items) which were ``investment securities'' on an unconsolidated basis
was 1.7%. However, applicants state that if Rio Tinto were to continue
to transfer funds among the Group in a tax- and capital efficient
manner, and were to continue to treat intra-group receivables arising
from such transfers as ``investment securities'', then either RTP or
RTL (and, in effect, Rio Tinto) could run a significant risk of being
deemed an ``investment company'' under the ``asset test.''
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\2\ ``Government securities'' are defined under section 2(a)(16)
of the Act as any securities issued or guaranteed as to principal or
interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the United States
pursuant to the authority granted by the Congress of the united
States, or any certificate of deposit for any of the foregoing.
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3. Rule 3a-1 under the Act provides an exemption from the
definition of investment company if no more than 45% of a company's
total assets consist of, and not more than 45% of its net income over
the last four quarters is derived from, securities other than
Government securities, securities of majority-owned subsidiaries and
primarily controlled companies (``income test''). These percentages are
determined on a consolidated basis with the company's wholly-owned
subsidiaries. Applicants state that as of December 31, 2010, the
percentage of total assets (exclusive of Government securities and cash
items) which were ``investment securities'' for RTP and RTL was 10.3%
and 24.3% of their total assets, respectively, and the total income
derived from such ``investment securities'' (``investment income'') for
RTP and RTL was 35.5% and 6% of their total income, respectively, as
calculated pursuant to rule 3a-1. However, RTP no longer beneficially
owns (directly or indirectly) any shares of RTL, and therefore there is
no longer a presumption of ``control'' under section 2(a)(9) of the Act
so distributing funds efficiently within the Group could result in a
breach of the ``income test.''
4. Section 3(b)(2) of the Act provides that, notwithstanding
section 3(a)(1)(C) of the Act, the Commission may issue an order
declaring an issuer to be primarily engaged in a business or businesses
other than that of investing, reinvesting, owning, holding, or trading
in securities either directly or through majority-owned subsidiaries or
through controlled companies conducting
[[Page 80432]]
similar types of businesses. Rio Tinto requests an order under section
3(b)(2) of the Act declaring that it is primarily engaged in a business
other than that of investing, reinvesting, owning, holding or trading
in securities, and therefore not an investment company as defined in
the Act.
5. In determining whether a company is primarily engaged in a non-
investment company business under section 3(b)(2), the Commission
considers: (a) The issuer's historical development; (b) its public
representations of policy; (c) the activities of its officers and
directors; (d) the nature of its present assets; and (e) the sources of
its present income.\3\
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\3\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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a. Historical Development. Rio Tinto's predecessor companies, the
Rio Tinto Company and The Consolidated Zinc Corporation, were formed in
1873 and 1905, respectively, to mine ancient copper workings and to
treat zinc bearing mine waste. The RTZ Corporation (``RTZ'') was formed
in 1962 by a merger of The Rio Tinto Company and the Consolidated Zinc
Corporation. At the same time, CRA Limited (``CRA'') was formed by a
merger of the Australian interests of The Rio Tinto Company and The
Consolidated Zinc Corporation. Between 1962 and 1995, both RTZ and CRA
discovered important mineral deposits, developed major mining projects
and also grew through acquisitions. RTZ and CRA were unified in 1995
through the DLC structure; RTZ became RTP and CRA became RTL, together
known as Rio Tinto. Historically, the vast majority of the revenues of
Rio Tinto's predecessor companies have come from their mining and
natural resource processing operations.
b. Public Representations of Policy. Rio Tinto states that it has
never represented that it is involved in any business other than the
finding, developing, mining and processing of the earth's mineral
resources. Rio Tinto asserts that it has consistently stated in its
annual reports, press releases, filings with the Commission, marketing
materials and Web site, that it is a diversified mining and exploration
company. Rio Tinto states that it generally does not make public
representations regarding its investment securities except as required
by its obligation to file periodic reports to comply with federal
securities laws. Rio Tinto further states that its press releases and
other written communications have emphasized operations and it has
never emphasized either its ``investment income'' or the possibility of
significant appreciation from its cash management investment strategies
as a material factor in its business or future growth.
c. Activities of Officers and Directors. Rio Tinto states that its
executive directors and officers spend substantially all of their time
directing and managing the diversified mining and related businesses.
The Chief Financial Officer of Rio Tinto spends approximately 5% or
less of his time overseeing cash management and investment (or
``treasury'') activities, and spends the vast majority of his remaining
time advising the Chief Executive Officer and Rio Tinto's boards on
strategic initiatives and transactions, overseeing economic analysis
and forecasting and financial reporting activities, and overseeing Rio
Tinto's taxation policies and meeting with investors. Apart from the
Chief Financial Officer, the directors and other officers have little
involvement in treasury activities. Applicants state that, as of
December 31, 2010, Rio Tinto employed approximately 77,000 people on a
global basis, with approximately 73,000 focused on Rio Tinto's
operations; approximately 3,700 employees are focused on business
support functions, of which fewer than 50 spend any appreciable amount
of their time on cash management and treasury policies.
d. Nature of Assets. Applicants state that Rio Tinto is an
international mining group, and its assets are mainly goodwill and
fixed, tangible assets used in its operations. Rio Tinto states that
the value of its ``investment securities'' (as defined in section
3(a)(2) of the Act), including intra-group receivables, was
approximately 1.7% of its total assets (exclusive of Government
securities and cash items) in accordance with rule 3a-1, and the
corresponding values for RTP and RTL were 10.3% and 24.3%,
respectively, when calculated pursuant to rule 3a-1. Excluding intra-
group receivables from the calculations under rule 3a-1, the percentage
of total assets (exclusive of Government securities and cash items)
that would be considered ``investment securities'' as of December 31,
2010, for RTP and RTL would have been 1.6% and 1.1%, respectively.
e. Sources of Income and Revenue. Applicants state that both RTP
and RTL currently satisfy the income test under rule 3a-1. For the year
ended December 31, 2010, Rio Tinto had net income from continuing
operations of US$15,281 million, of which approximately 1.1% was
``investment income''. The corresponding values for RTP and RTL were
35.5% and 6%, respectively. Applicants state that in the future, Rio
Tinto expects substantially all of its revenues to come from its mining
and related operations.
6. RTP and RTL thus assert that Rio Tinto satisfies the standards
for an order under section 3(b)(2) of the Act.
Section 45(a) of the Act
1. Section 45(a) of the Act provides that information contained in
any application filed with the Commission under the Act shall be made
available to the public, unless the Commission finds that public
disclosure is neither necessary nor appropriate in the public interest
or for the protection of investors. Applicants request an order
pursuant to section 45(a) of the Act granting confidential treatment to
certain financial and other information set forth in Exhibit D.
2. Applicants state that Exhibit D contains detailed financial and
other information that Rio Tinto does not otherwise disclose.
Applicants state that the application provides a description of the
nature of Rio Tinto's assets and the sources of its income, and that
the publicly available financial data and other information in the
application is sufficient to fully apprise any interested member of the
public of the basis for the requested relief.
3. Applicants believe that public disclosure of this information
about Rio Tinto would cause substantial harm to its competitive and
negotiating positions as it would provide competitors and financial
counterparties with insight into the assets, liabilities and income of
Rio Tinto and its subsidiaries which they would not otherwise have. For
these reasons, applicants believe that public disclosure of the
information in Exhibit D is neither necessary nor appropriate in the
public interest or for the protection of investors.
Applicants' Conditions
Applicants agree that any order granted pursuant to the application
will be subject to the following conditions:
1. Rio Tinto (consisting of RTP and RTL) continues to constitute a
DLC.
2. None of RTP, RTL or Rio Tinto will hold itself out as being
engaged primarily, or propose to engage primarily, in the business of
investing, reinvesting, or trading in securities.
3. Rio Tinto (consisting of RTP and RTL) continues to allocate and
utilize their accumulated cash and investment securities primarily for
bona-fide business purposes arising out of the finding, developing,
mining and processing of mineral resources.
[[Page 80433]]
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32922 Filed 12-22-11; 8:45 am]
BILLING CODE 8011-01-P