Jaimie Freed The Australian Financial Review PUBLISHED ONLINE: 08 Sep 2011
Rio Tinto's planned sale of a 57.7 per cent stake in the Palabora copper mine in South Africa , which could raise around $US550 million is likely to be followed by further asset sales, CLSA analyst Hayden Bairstow says.
He expects some of its high-cost aluminium assets could be next on the list, as was flagged by Rio chief executive Tom Albanese during a results briefing last month.
"You have got to look at the entire portfolio of Rio Tinto Alcan assets to make sure they are fit-for-purpose and that Rio Tinto is the best owner for those, and I think we have flagged a couple of things that we are doing, strategic reviews in Britain and Europe, and of course we'll look at that entire portfolio," Mr Albanese told analysts.
Rio has a target of improving earnings before interest, tax, depreciation and amortisation margins in its aluminium business to 40 per cent by 2014.
Mr Bairstow said he suspected Rio could look to sell some specialty alumina plants in France and Germany and aluminium smelters in Norway and France to meet its targets, but added some other smelters in Britain, the US and Australia could also be under review for a possible sale.
While it looks to sell some of its lower margin or shorter-life assets, Rio has been looking to invest in top-tier assets. This year it spent $4 billion buying Mozambique coal developer Riversdale Mining and is in the middle of a joint bid with Mitsubishi to mop up the remainder of its NSW coal business, Coal & Allied Industries.
Rio has also been boosting its stake in Canadian-listed Ivanhoe Mines, the developer of the Oyu Tolgoi copper-gold project in Mongolia. Rio has spent $US4 billion to date for a 48.5 per cent share of Ivanhoe. Mr Bairstow said it would cost $US10.5 billion to buy the remainder, assuming 30 per cent premium to the current market value.
He expects if Rio was to acquire Ivanhoe it would look to sell the Kyzyl gold project in Kazakhstan, along with its 62 per cent stake in locally-listed copper explorer Ivanhoe Australia and its 57 per cent stake in Hong Kong listed SouthGobi Resources, which owns coal mines in Mongolia.
Mr Bairstow said Rio's uranium arm could also be due for a restructure given the recent struggles at Energy Resources of Australia's Ranger mine in the Northern Territory and the loss-making position of the Rossing mine in Namibia.
He said a tie-up with Extract Resources, which owns the Husab project next to Rossing, appeared to be sensible but could prove complicated due to the presence of many interested strategic parties, including China Guandong Nuclear Power Corp and Japanese trading house Itochu.
"We suspect that a joint venture between CGNPC, Rio Tinto and Itochu looks the most likely outcome should a deal be consummated, but have not yet factored this into our forecasts," he said.
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