Can Rio get off the rocks? London Calling says it's a moral question
Despite recent disposals in order to cover its massive debt, Rio Tinto's prospects of selling more of the family silver (or copper, or nickel, or aluminium) have seemed increasingly dim.
Last year, its plan to sell off US$10 billion of assets fell on sterile ground, raising only just over a quarter of the target figure. It's likely, too, that the company's plans to trade other holdings with shareholder, Chinalco, will also fail.
Last week the company mooted an equity (share) rights issue, hoping the "market" would finally bite. But the markets weak response to this was demonstrated on January 28th, when Rio's shares fell by 8% in the early hours, recovering only slightly a few hours later.
True, the sale of iron ore and phosphates assets to Brazil's Vale (formerly CVRD) just a day later, diminished its need to make such an issue. But this isn't going to be anywhere near enough. '
Whether such a strategy will work depends on several factors; including timing of the rights issue, bankers' perceptions of the length and severity of the current "recession", and just what the company will get rid of next. Rio must clearly demonstrate not only a prudent fiscal strategy, but that it will be left with projects with a viable and competitive future. Confidence in Rio's ability to do precisely that has been severely eroded under the aegis of CEO, Tom Albanese over the past two years.
The UK-Australian conglomerate is currently a shadow of its former self in broad financial terms. Its market capitalisation today is less than half what it was a few months back, and its position as the world's premier miner in the 1990s has now slipped by four notches.
But Rio Tinto is still the world's biggest titanium producer, one of its largest coal producers, and second in the global iron ore hierarchy. In these three sectors, the company is far from "squeaky clean" with regard to adverse social impacts.. There is still opposition to its Madagascar titanium project and the planned Simandou iron ore mine in Guinea; while its Global Greenhouse Gas contributions from coal don't endear it to an increasingly sensitive and militant climate change lobby.
Nonetheless, it's not unthinkable that a "Reformed Rio", concentrating on titanium and iron while cutting back on the black stuff, and acknowledging the hazards of nuclear power, would render it not only more viable, but also environmentally and socially responsible.
Rio Tinto's key and endemic problem is its "hubris" - something identified in the early years of campaigning by the company's nemesis, People Against Rio Tinto and Its Subsidiaries (Partizans), as a trait that one day could see the company's downfall.
To forsake gold, copper and uranium - while also dispensing with its greed for bauxite - would strike faith and hope (if not charity) in the hearts of many of its critics.
It isn't hopelessly naïve to attribute the disposal of its phosphates unit in Argentina solely to the current credit disaster. After all, the Rio Potasio proposal provoked some of the most active recent opposition to the company in recenet years.
But there's much, much more it should do before it can earn any respect from its many detractors: selling out of its joint venture with Robert Friedland's notorious Ivanhoe Mines (see related posting this week); abandoning its parlous nickel-copper play in Michigan, and one in Indonesia; unequivocally pledging not to. re-enter Bougainville
That's just for starters. The most important proof that Rio is putting ethics at the core of future corporate closures would be to surrender its partnership with Freeport in West Papua's Grasberg copper-gold venture, one of the most (if not the most) polluting mines on the planet.
So long as the doyens of the one of the oldest major extractive enterprises on the planet believe they will still hack it as the "the brightest and the best", they could come a mighty cropper.
The time has never been more ripe for Rio Tinto to make decisions predicated, not on its self-serving choices of the past 150 years , but on the moral dictates of the 21st century.
[London Calling is published by Nostromo Research, London. Views expressed in this column are not necessarily held by any other author, including the editors of the MAC website. Reproduction is welcomed, provided full acknowledgement is given to Nostromo Research and any sources quoted.]
Rio mulls share sale in further bid to cut debt mountain
28TH January 2009
Rio Tinto is considering selling new shares as it ramps up its efforts to reduce debts by $10 billion this year.
The news is an about-turn in strategy by the debt-laden diversified miner, which until now has ruled out the possibility of an equity issue.
Efforts to cut its huge debt have so far focused on lowering capital expenditure and selling assets. Most of its debts are the result of the company's ill-timed $38.1-billion purchase of Alcan in 2007.
"To preserve maximum flexibility for the group, the boards do not rule out the potential to issue equity as one of the options it has available," Rio said in a stock exchange statement on Wednesday.
Rio would need to raise about $8 billion from an equity issue for it to achieve its target of cutting debt by $10 billion by the year-end if it fails to make any much-needed asset sales, Numis Securities mining analyst Simon Toyne said.
This equates to some 27% of Rio's current market capitalisation.
Rio's debt excluding asset sales not yet announced would be about $37.5 billion by end-2009, far above the company's target of $29 billion, according to Toyne's estimates.
"An equity issue of the order of $8 billion in the absence of further asset disposals looks possible," he said. "We believe the deciding factor will be the success of the disposal programme. The likelihood of disposing of assets for acceptable prices is becoming remote due to generally worsening economic conditions."
The company had planned to sell $10 billion of assets in 2008 but raised less than $3 billion. It has been trying to sell Alcan's engineered products and packaging operations but has struggled to find a buyer for such low-margin businesses in the credit crunch.
In December, Rio Tinto announced plans to slash capex by $5 billion-9 billion this year and cut 14,000 jobs as part of its efforts to cut its debts by around $10 billion by the end of 2009 (MB Dec 10).
The $10 billion largely relates to the repayment of part of a $40 billion loan agreed when it bought Alcan. The first tranche of $15 billion, with $9 billion already drawn, is due in October, the deadline having been extended from last October.
Rio may have to sell part or all of its 30% stake in Escondida, the world's largest copper mine in Chile, some analysts have said, but Rio will likely look at all other options first before putting the jewel in its crown up for sale, market observers said.
"Rio Tinto continues to consider a range of options to meet its commitments to reduce debt by $10 billion by the end of 2009, including, amongst other things, reduction of capital expenditure and operating expenditure, a reduction in global headcount and expanding the scope of assets targeted for divestment," it said on Wednesday.
Alongside the huge debts it is carrying, Rio has been hit by the plunge in prices of its core commodities - copper, aluminium, iron ore and coal - in the last six months.
Rio's credit ratings were downgraded by Moody's and Standard & Poor's late last year on concerns about the company's debt.
Rio's shares in London fell by as much as 8% on Wednesday morning as word of a possible equity issue spread. Shares dropped to an intraday low of £15.05 ($21.5) from £16.39 at the close on Tuesday. By 1 pm, shares had recovered slightly to £15.58.
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Rio agrees $1.6 billion asset sale to Vale, shares jump
By James Regan and Eric Onstad
30TH January 2009
SYDNEY/LONDON - Debt-laden miner Rio Tinto Ltd/Plc agreed to sell assets in South America to rival Vale of Brazil for $1.6 billion, sending its shares climbing as investors welcomed progress in cutting debt and lowering chances of a rights issue.
Rio, whose shares have been hit by worries about its debt burden of $39 billion, on Wednesday confirmed rumors it was considering selling new shares to raise cash and help meet its target of cutting debt by $10 billion this year.
Shares in London, which have fallen 77 percent since touching a peak last May, jumped 4.4 percent to 1,618 pence by 1115 GMT, compared with a 1.7 percent fall in the UK mining index .FTNMX1770.
"The asset is clearly a marginal contributor to the overall Rio iron ore portfolio, the expansion would have been in our view NPV (net present value) negative, and the price achieved appears very favorable," analyst David Butler at Cazenove said in a note.
An announcement on Thursday by rival Xstrata, another mining group burdened with heavy debt, that it was launching a rights issue which would triple the number of shares and raise $5.9 billion, had initially hit Rio shares as speculation grew that it would follow suit.
However, Rio's sale of mining assets on Friday calmed investors and raised the prospect that it might be able to sell enough mines to avoid a dilutive issue of shares.
"These projects . highlight the huge option value existing within the Rio Tinto diversified portfolio," Butler said.
"The company is therefore moving ever closer to its $10 billion debt reduction target and this move provides, in our view, further evidence that Rio are trying to avoid coming to the market for cash if they can possibly avoid it."
POTASH AND IRON ORE
Rio said it agreed to sell to Vale potash assets for about $850 million and its Corumba iron ore mine in Brazil for $750 million.
Brazil's Vale is the world's biggest iron ore producer and Rio is No. 2.
"This transaction demonstrates the depth and quality of our asset portfolio and our ability to unlock value for shareholders despite tough credit markets and economic conditions," Guy Elliott, Rio's chief financial officer, said in a statement.
"This is a very positive step toward meeting our commitment to reduce debt by $10 billion in 2009," he said.
The potash sale, comprising the PRC operation in Argentina and the Regina exploration asset in Canada, should be completed in February, the company said.
It expects to complete the Corumba transaction in the second half of 2009.
Rio on Wednesday said it might need to sell shares to help pay off its debt burden, citing an equity raising as one option being considered as world commodities markets continue to falter.
Rio announced sweeping plans in December to cut jobs, slash capital spending and expand asset sales aiming to cut debt after bigger rival BHP Billiton Ltd/Plc scrapped a $66 billion takeover bid, blaming Rio's weighty debt and sliding metals prices.
Rio had aimed to sell $10 billion worth of assets last year, including its U.S. coal business after it bought Alcan for almost $40 billion.
Prior to Friday's announcement, it had sold $3.1 billion in assets, including its half stake in a Chinese aluminum smelting business. It is still looking to sell its U.S. coal business and the Alcan packaging business.
(Editing by Andrew Macdonald)
Rio Sells Potash, Iron-Ore Assets to Vale to Cut Debt
By Rebecca Keenan and Jean Chua
30th January 2008
Rio Tinto Group, the world's third- largest mining company, agreed to sell South American potash and iron-ore assets to Cia. Vale do Rio Doce for $1.6 billion in cash to help meet a debt-reduction goal.
Vale is paying $850 million for the Potasio Rio Colorado potash project under development in Argentina, London-based Rio said today in a statement. The Corumba ore mine in Brazil is fetching $750 million. Rio climbed as much as 7.6 percent, the most since Jan. 26 in intraday terms, in London trading.
Rio aims to lop $10 billion off its $38.9 billion of debt this year by selling assets, spending less and cutting jobs after the world economic slump caused commodities demand to collapse. The company postponed a $2.15 billion expansion of Corumba this month as steel mills worldwide slow output and slash purchases of ore and other raw materials.
"This is a very positive step, given the market's focus on its balance sheet and divestment program," Sam Catalano, an analyst at Macquarie Bank Ltd. in London with a "neutral" rating on Rio stock, wrote of the company today in a research note. "It's certainly positive to see assets being sold that generate very little benefit at the bottom line."
The company aims to complete the potash sale next month and to close the iron-ore disposal in the year's second half, according to the statement. The Corumba sale requires approval from regulators, it shows. The disposals increase the total amount raised from asset sales to $4.6 billion.
Rio gained as much as 117 pence to 1,667 pence. The stock was up 89 pence, or 5.7 percent, at 1,639 pence at 9:14 a.m. local time. The shares have slid 66 percent in the past year as metals prices plunged and larger competitor BHP Billiton Ltd. scrapped a takeover bid. In Sydney trading, Rio climbed 3.5 percent to close at A$42.15.
Mining companies around the world are moving to lower costs and raise cash as industry sales wilt. Rio is cutting 14,000 jobs, putting assets up for sale and slashing spending by $5 billion. Debt jumped 19-fold after Rio bought Canadian aluminum company Alcan Inc. for $38.1 billion in 2007.
The potash sale includes exploration ground in Canada, while the Corumba disposal also includes river operations in Paraguay. Potash is used to make glass and fertilizer.
Río Tinto vende en 850 millones de dólares su proyecto mendocino
30 de Enero de 2009
La multinacional se desprende de su megaproyecto minero en la provincia. Proyecto Potasio Río Colorado se encuentra en etapa de factibilidad y si se desarrolla, permitirá que Argentina sea uno de los mayores productores del mundo de cloruro de potasio.
La multinacional Rio Tinto informó hoy que en febrero se desprenderá del megaproyecto minero que posee en Mendoza. Ya firmó un acuerdo para vender sus activos de potasio no desarrollados, entre los cuales el principal es Potasio Río Colorado (PRC), ubicado en el sur de Malargüe.
La compañía minera brasilera Vale (Companhia Vale do Rio Doce) comprará el capital por 850 millones de dólares, informó Río Tinto en un comunicado de prensa al que accedió MDZ.
La transacción de potasio comprende al proyecto mendocino pero también el activo en exploración Regina, en Canadá. Una operación culminará en febrero y en el mismo mes recibirán el dinero efectivo, que será utilizado para la cancelación de deuda.
En PRC la empresa no había extraído aún el cloruro de potasio (fertilizante agrícola), por lo tanto no le había otorgado ganancia alguna.
Sin embargo, la evaluación de los gastos de los proyectos de potasio en la primera mitad de 2008 fue de 18 millones de dólares. Y los activos brutos de PRC eran 33 millones de dólares al 30 de junio de 2008, según informó la compañía.
El dinero sirvió para la exploración de la mina en Malargüe, ejecución de estudios ambientales, económicos y financieros necesarios para el desarrollo del proyecto.
A la firma le faltaba un permiso ambiental, que debía emitir el Gobierno de Mendoza, para comenzar a extraer cloruro de potasio. Para construir la mina el presupuesto previsto por la empresa era de 3.500 millones de dólares. Un monto que superaba a la mayor inversión minera de la Argentina: los 3.000 millones de pesos que colocó Barrick en Veladero, San Juan.
El Proyecto Potasio Río Colorado se encuentra en etapa de factibilidad y, si se desarrolla, permitirá que Argentina sea uno de los mayores productores del mundo de potasio, un nutriente esencial para los cultivos. Se estima que la vida útil de la mina será más de 50 años.
Para pagar deudas
En total la empresa, recibirá un monto de 1.600 millones de dólares, porque la venta a la minera Vale incluye su mina de mineral de hierro en Brasil junto a sus operaciones de logística fluvial en Paraguay. Ese dinero se destinará al pago de deudas de la empresa.
El perfeccionamiento de la transacción de Corumbá está sujeto a la recepción de las aprobaciones regulatorias pertinentes, mientras que no se requieren aprobaciones para perfeccionar la transacción de potasio, aclaró la firma.
"Esta transacción muestra la diversidad y calidad de nuestro portfolio de activos y nuestra capacidad para obtener valor para nuestros accionistas aún en las adversas condiciones económicas y del mercado crediticio," dijo Guy Elliott, CFO, Rio Tinto. "Este es un paso muy positivo para lograr nuestro compromiso de reducir la deuda en US$10mil millones en 2009".
En diciembre 2008, Rio Tinto anunció un detallado paquete de medidas para responder a la crisis económica mundial. Un aspecto de esas medidas incluye ampliar el alcance del programa actual del Grupo de realización de activos.
Durante el año pasado, la compañía obtuvo casi 3 mil millones de dólares por la venta de activos, incluyendo la mina de Greens Creek en Alaska (750 millones de dólares), su interés en la operación Cortez en Nevada (1,695 mil millones de dólares) y el proyecto de uranio Kintyre en Australia Oriental (495 millones de dólares).
Este mes el grupo también anunció la venta de sus intereses en fundición de aluminio de Ningxia en China 125 millones de dólares.
La transacción de Corumbá se espera sea en el segundo semestre de este año. En este caso el monto llega a 750 millones de dólares.
Rio Tinto Alcan permanently shutting Quebec smelter, cutting 1,100 jobs
THE CANADIAN PRESS
23rd January 2009
MONTREAL - Rio Tinto Alcan is permanently closing its Beauharnois smelter in Quebec and curtailing production at the Vaudreuil alumina refinery.
The moves announced Tuesday are part of a new six per cent reduction in aluminum production which will cost 1,100 jobs worldwide at the international metal giant.
The Beauharnois smelter, which opened in 1943 and employs 220 people, will cease operation by the end of the second quarter of this year.
Other actions include the planned sale of Rio Tinto's interest in the Alcan Ningxia joint venture in China.
The new scalebacks follow curtailments late in 2008 that cut output by five per cent, as the company struggles "to align production with customer demand."
The total 11 per cent output reduction amounts to 450,000 tonnes annually.
Of the 1,100 jobs being eliminated worldwide, 800 are Rio Tinto Alcan employees and 300 are on contract.
"In addition, substantial cost reduction programs are being implemented across all Rio Tinto Alcan facilities," the company stated.
RIO TINTO IN TALKS OVER CASH BOOST FROM CHINA
29th January 2009
The Anglo-Australian mining company Rio Tinto is in negotiations with the state-owned Chinese metals group Chinalco about a proposed cash injection and sale of assets. If talks with Chinalco, which is already a nine per cent stakeholder in the company, fail to raise enough funds to help with its current debts of 39 million dollars, then Rio Tinto is likely to be forced into a rights issue. That fate has already befallen Rio's Anglo-Swiss rival Xstrata, which is widely expected to announce a six billion dollar rights issue some time in the next few days.
Uranium provides a rare bright light for Rio Tinto
31st January 2009
URANIUM continues to stand out as a bright light amid the gloom of the resources sector.
Energy Resources of Australia announced a 191 per cent jump in profit to a record $221.8 million last year.
The Rio Tinto subsidiary also announced that reserves at its Ranger mine in the Northern Territory had increased 128 per cent to 115,000 tonnes of uranium oxide, largely as a result of lowering the cut-off grade.
Reserves at Jabiluka increased to 67,700 tonnes of uranium oxide.
ERA, which produces about 10 per cent of the world's uranium, continued to build its stockpiles of ore inventory throughout last year, with mining rates exceeding processing rates.
ERA chief executive Rob Atkinson said the results pointed to a stronger performance as ERA continued to put more "higher performing contracts" in price to replace older, lower priced deals.
"ERA has been putting contracts in place throughout the cycle," Mr Atkinson said.
"As older legacy contracts roll off and are replaced by higher performing contracts, ERA will see a strengthening of the realised price."
In 2008, the averaged realised price rose 30 per cent to $US32.53 a pound. The spot price on December 31 was $US52.50 a pound, down from $US89.50 at the same time in 2007.
Mr Atkinson said the uranium market remained "more robust than other mineral commodities" amid forecasts of tight supply and rising demand.
Fat Prophets analyst Gavin Wendt said the result was in line with expectations. "It's a very strong result with a tremendous improvement on 2007," Mr Wendt said.
"The numbers were helped by the fact that there was a large amount of product delivered in the fourth quarter of 2008 when the Australian dollar was low, so that has helped things along a little bit."
ERA shares closed up 35c at $19.35.