Rio Tinto may have to swallow a cut-price deal if it wants to get the sale of its aluminum division away.
That’s the view of Deutsche Bank analysts who have slashed their valuation of Rio’s interests in six Australian and New Zealand aluminum assets to US$4.4 billion. The new valuation represents a whopping 32% drop on its previous US$6.5 billion estimate a little over four months ago.
Rio insists it isn’t a forced seller of the Pacific Aluminium business, and there’s still plenty of time for the aluminum price to recover. At an investor strategy day on Nov. 29, Rio’s management pointed to their strong balance sheet and a timeline that extends to 2015 to scotch any talk of an imminent firesale.
“We expect that Pacific Aluminium’s new management will be given time to define the earnings potential and free cash flow of the assets and improvement opportunities…we thus assume the business unit is divested by the first half of 2013,” Deutsche’s Paul Young said in a note.
The broker reckons Rio’s sale could be through an initial public offering, similar to its divestment of its US coal business through the IPO of Cloudpeak. Other options include an in-specie distribution, trade sale or even a break-up.
Mr. Young also suggested Rio may need to wait for an uptick in commodity prices.
As well as Pacific Aluminium, Rio management flagged the sale of three smelters and specialty Alumina refineries. However, Deutsche notes the closure rather than the sale of the higher-cost smelters may be a more realistic option.
When Rio reports Thursday, Deutsche expects a US$6 billion writedown from its US$38 billion aluminum division. Because it is non-cash, it won’t impact Rio’s cost of debt and also won’t change any upside from the proposed transformation program which Deutsche estimates could see the division contribute 20% of group earnings by 2017.
Since 2008, Rio has written off US$6.1 billion of the US$19 billion in goodwill that was attached to its Alcan acquisition.
豫公网安备41010502003434号