Rio Tinto Shopping its Aluminium Assets: Industry Sources

Rio Tinto Shopping its Aluminium Assets: Industry Sources

According to industry sources, Anglo-Australian mining major Rio Tinto is seeking buyers for parts of its aluminium operations.

An article published yesterday in The Australian Financial Review said that Rio Tinto is seeking buyers for its three Australian aluminium smelters – namely Tasmania’s Bell Bay, Queensland’s Boyne, and New South Wales’ Tomago, citing unnamed insiders as their source. Those sources indicate that the firm has engaged Deutsche Bank, who has shepherded most of Rio Tinto’s recent mergers and acquisitions.

Although the aluminium segment has been shopped around many times before, industry observers say that there is an increased push to close a deal under new chief Jean-Sebastien Jacques.

Rio’s aluminium division has a book value of US$1.2 billion, according to experts. No parties have yet come forward and expressed an interest in it, but industry sources say Alcoa is not in the market. Last year the head of X2 Resources expressed interest in the aluminium division, but only if it was bundled with Rio’s coal assets, according to The Australian Financial Review. They say that talks broke off after a price could not been agreed upon.

Rio also has aluminium assets in Scotland, Oman, New Zealand, and France, and industry sources say that those assets will not be far behind Rio’s Australian assets once the latter set finds a buyer. However, Rio’s assets in Canada, especially its Kitimat smelter, are not likely to be up for sale. Rio produces its own energy for its Canada operations, making power costs much lower than they are at other locations, and therefore making those assets perform better than assets elsewhere. In addition, Kitimat has recently been expanded, at significant cost to the company.

The firm’s alumina refineries may be a sweetener to any deal Rio presents. According to the firm’s latest financials, the refineries in its portfolio are free-cash-flow positive. Adding in refineries to a smelter deal also would help insulate a potential buyer from alumina price fluctuations.

Although Rio is said to be attempting to get out of the aluminium business, the firm has doubled down on bauxite ore. Strong demand for the ore from, among others, the People’s Republic of China led Rio to sink US$1.9 billion in its high-grade bauxite operation at Weipa.