Own Rio Tinto (ASX:RIO) shares? What options does the company have in response to the Serbian government’s decision

Rio Tinto will be carefully reviewing its options…

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Key Points

  • Rio Tinto shares withstand market pressure
  • Management looking at legal options to overturn the Serbian Government’s decision
  • Rio Tinto aiming to become a top-tier lithium player

The Rio Tinto Limited (ASX: RIO) share price has managed to stay in positive territory for 2022, despite the volatility on the ASX.

In January, the mining heavyweight’s shares have risen by almost 7% in value. In contrast, the S&P/ASX 200 Index (ASX: XJO) has sunken 6.5% over the same time frame.

At Friday’s closing bell, Rio Tinto shares finished the day down 0.82% to $107.08.

A quick recap on the Serbian lithium exploration licences fiasco

Last week, relations between Australia and Serbia hit an all-time low following the ill-treatment and deportation of Novak Djokovic.

In response to Australia’s handling of the crisis, the Balkan nation decided to revoke Rio Tinto’s lithium exploration licences.

Serbian environmentalists protested for several weeks against the potential development of the lithium mine by blocking main roads and bridges. If the project went ahead, pollution would run through nearby land and water, affecting valuable farmland.

Furthermore, with the general election just 3 months away, the Serbian Prime Minister would be looking to shore up support.

During a televised address to the nation, Serbian Prime Minister Ana Brnabic said:

We have fulfilled all the requests of the environmental protests and put an end to Rio Tinto in the Republic of Serbia.

Everything is finished. It’s over.

A short time after, Rio Tinto stated that it was extremely concerned by the Serbian Prime Minister’s statement, and is reviewing legal options.

What cards is Rio Tino holding?

The latest move by the Serbian Government has no doubt put Rio Tinto on the backfoot.

The Anglo-Australian miner is in unfamiliar territory and doesn’t have many options on the table to overturn the decision.

One option though could see Rio Tino sue for breach of the fair and equitable treatment provision under the bilateral investment treaty. Both Serbian and the United Kingdom are signatories of this pact along with other European member states.

The purpose of a bilateral investment treaty is to stimulate foreign investments by reducing political risk.

Of course, this course of action could only prevail if the Serbian Government formally terminates the license without good cause. Nonetheless, whatever the outcome, this would likely cause permanent damage to relations between Rio Tinto and Serbia.

Another option would be to hope that pro-mining politicians win the general election and reinstate the exploration licences. Notably, in the last 2020 general election, the Serbian Progressive Party (SNS), lost a large number of its voters. This was because of its strong support of mining in the country.

Rio Tinto has already spent around $450 million on pre-feasibility and other studies for the Serbian lithium project. In total, the mining giant planned to invest up to $2.4 billion in construction and development activities.

If approved, it would have become the biggest lithium mine in Europe and one of the largest in the world.

Experts estimated the mine to have a 40-year life, producing 2.3 million tonnes of lithium carbonate per year.

Rio Tinto share price snapshot

Despite travelling 7% higher in 2022, it has been a disappointing 12 months for Rio Tinto shareholders. The company’s shares have lost around 12% in value since this time last year.

Based on today’s price, Rio Tinto has a market capitalisation of $39.75 billion and approximately 371.22 million shares outstanding.

Should you invest $1,000 in Rio Tinto right now?

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Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.

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