Bloomberg News

Rio Tinto Agrees to Buy BHP’s Stake in Richards Bay Minerals

February 02, 2012

(Updates with analyst comment in fourth paragraph.)

Feb. 1 (Bloomberg) -- Rio Tinto Group, the third-biggest mining company, will gain control of Richards Bay Minerals, or RBM, on South Africa’s east coast in a deal that sees BHP Billiton Ltd. exiting the titanium minerals industry.

Rio, operator of the RBM venture, will double its stake to 74 percent after BHP exercised an option to sell 37 percent, the companies said, without disclosing the value of the deal. RBM produces mainly titania slag, which is mostly titanium dioxide, used to make products from paint to toothpaste.

Rio, the biggest producer of titanium-dioxide feedstock in 2008, according to TZ Minerals data, is studying expansion in Africa and Canada to meet a forecast for rising demand. RBM was valued at 19 billion rand ($2.4 billion) in September 2008 by Rand Merchant Bank, Rio said then. Prices for titanium dioxide have since climbed as global supplies of titanium ore tighten.

“This is a strategically sensible move for Rio,” London- based Liberum Capital Ltd. said today in a note. “With legacy contracts rolling off and RBM gaining increasing exposure to a near-doubling of titanium feedstock prices, we think this could be a meaningful business for Rio.”

BHP’s diamond and specialty products unit, which includes titanium, had an asset value of $2.8 billion as of June 30, compared with $18.6 billion for its petroleum business, according to data compiled by Bloomberg.

Shares Advance

Rio, based in London, gained as much as 1.4 percent to 3,859.5 pence in the city, and traded at 3,851 pence as of 10:40 a.m. local time. BHP also rose as much as 1.4 percent, before trading up 1.3 percent at 2,151 pence.

“Doubling our stake in the business solidifies our position at a time when the long-term outlook is strong and demand for higher-grade titanium dioxide is growing,” Harry Kenyon-Slaney, Rio’s head of diamonds and minerals, said in a statement.

BHP flagged in December that it may trim assets and products in the next decade as spending increases on shale gas, iron ore, coking coal and potash. Titanium mined at Richards Bay Minerals is primarily used in pigments, according to the Melbourne-based company’s annual report. BHP’s share of titanium minerals output was 481,000 metric tons, the report showed.

Coal, Aluminum

“BHP Billiton will continue operating its Southern African energy-coal, aluminum and manganese businesses in a sustainable manner,” BHP’s Southern Africa Chairman Xolani Mkhwanazi said in a separate statement. The company last month sold a stake in the coal business to Pembani Group (Pty) Ltd.

BHP’s diamond and specialty products business contributed $1.5 billion to the company’s revenue last fiscal year, or 2.1 percent of total sales, according to data compiled by Bloomberg. Underlying earnings before interest and tax were $587 million in the previous fiscal year, BHP said in its annual report.

The company bought almost $17 billion of shale-gas assets in the U.S. last year and approved $1.2 billion for initial work on a proposed expansion of the Olympic Dam project in Australia, which would make it the world’s largest uranium mine. BHP, which has said it may sell part or all of its diamond business, will limit investments in nickel and aluminum, Chief Executive Officer Marius Kloppers said in December.

--Editors: Keith Gosman, Amanda Jordan

To contact the reporters on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net; Carli Lourens in Johannesburg at clourens@bloomberg.net.

To contact the editor responsible for this story: Keith Gosman at kgosman@bloomberg.net.


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