Rio Says Trade, Private Equity Eye Aluminum Assets

 Rio Tinto has seen "quite a lot" of interest in aluminum operations earmarked for sale last year, despite tough market conditions, and is preparing the estimated $8 billion of assets for a variety of options, including a stock listing.     

 

Rio signalled a major retreat from its aluminum business last October when it unveiled plans to sell 13 assets, including smelters and alumina refineries, only four years after buying aluminum giant Alcan in one of the sector's biggest ever deals. 

 

 

"We've had actually quite a lot of trade buyer and private equity interest in these assets, either individually or collectively, so there's no shortage of interest. The question is the right structure and the right value proposition," Rio's Chief Financial Officer Guy Elliott told the Reuters Global Mining and Metals Summit on Tuesday. 

 

 

The global aluminum sector has been struggling with excess capacity in recent years and Rio acknowledged a gloomy outlook last month when it slashed the book value of Alcan by $9 billion.

 

 

Elliott said there were numerous options including a full or partial sale of the assets, an initial public offering or the distribution of shares in the business directly to shareholders. 

 

 

"We are preparing the business for all of these options. Right now is not an easy environment in which to make any of those sales, but we need to look ahead," he added, speaking at a Reuters office in New York, linked by video to London. 

 

 

Aluminum prices have shed about a fifth of their value since touching a peak of $2,800 per tonne in May last year and analysts estimate about 30 percent of global aluminum operations are loss-making. 

 

 

"We are not a forced seller, but at the same time we do want to move these assets on in time," he said. 

 

 

The sale, which would leave Rio Tinto's remaining aluminum business focused mainly on its more profitable Canadian operations, is designed to help the group boost its aluminum earnings' margins to 40 percent, up from 20 percent last year. 

 

 

Rio is also modernizing its Canadian smelters to lift margins, spending $3.3 billion on its Kitimat operation in British Columbia, which will be one of the lowest-cost smelters in the world, and $1.1 billion at its AP60 plant in Quebec.

 

 

Review at Mongolian Mine

 

 

Elliott also said Rio had launched a review of the Oyu Tolgoi copper-gold project in Mongolia now that the group has taken control of the mine's owner, Ivanhoe Mines. 

 

 

Earlier this year Rio raised its stake to 51 percent in Canada's Ivanhoe, which owns Oyu Tolgoi, regarded as one of the world's biggest copper and gold deposits. 

 

 

The review will cover future financing of the massive project and also whether there was the potential to divest Ivanhoe's other assets, including stakes in coal miner SouthGobi and Ivanhoe Australia. 

 

 

Rio did not comment on discussions with Ivanhoe chief executive, founder and major shareholder Robert Friedland over further share purchases or the potential for a deal to separate Oyu Tolgoi from Ivanhoe's other assets. 

 

 

"I think the world knows that our primary interest in Ivanhoe is directed towards Oyu Tolgoi ... if we had the choice we would have more Oyu Tolgoi and less of the other assets, but of course we don't have that choice," Elliott said. 

 

 

"So we need to work with the minority shareholder to find a solution to that question, if we can. One possible avenue ... is that the company may decide to sell those assets."    

 

 

Once it launches commercial output next year, Oyu Tolgoi is expected to produce more than 544,000 tonnes of copper, 650,000 ounces of gold, and 3 million ounces of silver a year on average over its first 10 years.