Bloomberg News

Rio Plans Sale of 13 Aluminum Assets in Australia, U.S.

October 17, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 17 (Bloomberg) -- Rio Tinto Group, the world’s second- biggest mining company, plans to sell 13 aluminum assets, including smelters and alumina plants from Australia to the U.S., to improve the group’s financial performance.

Rio’s stakes in six Australian and New Zealand assets will be transferred to a new unit to be named Pacific Aluminium before being sold, the London-based company said today in a statement. Seven other operations in France, Germany, the U.S. and U.K. will also be sold, it said.

Rio’s share of the assets may be valued at as much as $8 billion, according to Deutsche Bank AG, which described the sale as a “key catalyst” for the company. Rio has divested more than $11 billion in assets since 2008 to reduce debt after its $38 billion purchase of Alcan Inc.

“The move by Rio makes sense as it disposes of assets that on a relative basis generate lower returns and have lower cash margins than the overall aluminum group,” Glyn Lawcock, a Sydney-based analyst at UBS AG, said in a report today. “However, the current environment is not conducive we believe to a quick sale, and the process may take upwards of 18 months to complete.”

Rio, which counts Aluminum Corp. of China as its largest shareholder, fell 1.3 percent to 3,302 pence in London trading. The stock rose 2.4 percent to A$69.95 at the close in Sydney, compared with a 1.7 percent gain in the benchmark S&P/ASX 200 Index.

‘Studying Opportunity’

Chinalco, as the Chinese state-owned company is known, is the nation’s largest producer of the metal used in beverage cans, cars and planes. Russia’s United Co. Rusal is the world’s biggest aluminum maker.

“We saw Rio Tinto’s announcement today and at this stage we can only say that we will study this opportunity,” Maxim Sokov, Rusal’s deputy chief executive officer for strategy, said in an interview in Moscow.

JPMorgan Chase & Co. valued the aluminum assets at $7 billion, and said Rio’s share may be worth $5.5 billion, while Investec Bank Plc values the assets at $4.3 billion and UBS said they may be worth as much as $5.5 billion.

Pacific IPO?

Rio’s Pacific Aluminium unit “could be a candidate for in- specie distribution or IPO rather than sale, as there could be an appetite for another integrated aluminum producer,” UBS said.

Of all industrial metals, aluminum will have the biggest annual increase in demand through 2015 as the surplus supply turns to a shortage, according to researcher CRU. Consumption will outpace supply in 2015 as demand grows by an average of 7.6 percent a year, Paul Robinson, CRU’s non-ferrous metals group manager, said Oct. 3.

Rio plans to raise the profit margin at its aluminum unit to 40 percent by 2014, Deutsche Bank said in a Sept. 19 report. The margin was 39 percent in 2005, prior to the Alcan takeover, and shrank to 4 percent in 2009, the bank said. It was 16 percent in 2010.

“The strength of our balance sheet means that we can choose the most opportune method and timing to divest these assets, which may not occur until the economic climate improves,” Chief Executive Officer Tom Albanese said in today’s statement. The operations to be sold “are no longer aligned with our strategy.”

The $1 billion Tomago smelter in Australia and the $833 million Serbee smelter in the U.S. were the most valuable assets identified last month by Deutsche Bank in a list of nine Rio facilities singled out for possible sale.

Deutsche Bank also named the Lynemouth smelter in the U.K. and the Gardanne refinery in France as possible assets for disposal. They are on Rio’s list today. Rio may be able to achieve sales at 80 percent of the valuation, the bank said at the time.

--With assistance from Yuliya Fedorinova in Moscow. Editors: Alex Devine, Amanda Jordan

To contact the reporters on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net


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