October 19, 2011 at 7:00 pm #2091
Rio Tinto trims aluminium business
Chris Zappone/ October 17, 2011 – 11:07AM /Business Day – AAP-Reuters
Rio Tinto will sell 13 aluminium units worldwide, including refineries and smelters in Australia, as the world’s second-biggest miner seeks to streamline its Alcan aluminium business.
Rio Tinto said in a statement today the moves were part of a streamlining its aluminium group following a strategic review.
A spokeswoman for Rio Tinto said the changes in Australia did not currently involve any job redundancies.
“The formation of Pacific Aluminium doesn’t involve any immediate changes to employees or roles of employees,” she said.
In early trade, Rio Tinto stock gained $1.86, or 2.7 per cent, to $70.16, the highest since September 16.
The cutbacks are the latest in a series of moves following Rio’s badly timed $US39 billion acquisition of Alcan four years ago as it tries to boost the division’s performance.
The asset sales include operations in Australia, such as the Gove bauxite venture and Tasmania’s Bell Bay smelter. It will also offload assets in New Zealand and plants in France, Germany, the United States and the United Kingdom.
“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,” Rio Tinto Chief Executive Tom Albanese said in a statement.
Rio would consider making further investments in parts of its aluminium business that were not earmarked for divestment, Alcan division chief executive Jacynthe Cote told a media teleconference.
Cote said the company was particularly focusing on its bauxite mining and alumina refining operations in Queensland.
“It all depends of the quality of the assets,” Cote said.
The company’s revamp includes the creation of a separate unit for some assets in Australia and New Zealand, prior to their spin-off from Rio.
“Rio Tinto’s interests in six Australian and New Zealand assets will transfer into a new business unit, to be called Pacific Aluminium, and be managed and reported separately from the Rio Tinto Alcan product group prior to divestment,” the statement said.
These assets include the Gove bauxite mine and alumina refinery and Boyne Smelters and the associated Gladstone Power Station in Queensland. Also added to the new unit will be the Tomago smelter near Newcastle in New South Wales and the Bell Bay smelter in Tasmania.
The New Zealand asset sell-off includes its New Zealand Aluminium Smelters, the company said.
“A second group of seven non-core assets will continue to be managed by Rio Tinto Alcan while it further investigates divestment options,” the company said.
In Europe, the assets earmarked for divestment include three specialty alumina plants and the Gardanne refinery in France and Germany, and the Sebree smelter in the UK. Also in the UK, Rio will look to spin off or close its Lynemouth smelter and associated power station.
Mr Albanese said the assets identified for divestment were sound businesses that were well-managed with productive workforces, but they were no longer aligned with the company’s strategy.
He said the move was another step towards achieving performance targets in the Aluminium product group.
”We have already made good progress, with plans in place to generate sustainable performance improvement, and we are investing at a number of our core assets.”
Rio Tinto Alcan chief executive Jacynthe Cote said Rio Tinto had begun consultations with affected stakeholders and would engage with governments, regulators and workers.
The chief executive of Pacific Aluminium will be Sandeep Biswas. He will report to Rio Tinto business support and operations group executive Bret Clayton
Rio shores up its core
Stephen Bartholomeusz / Business Spectator / Published 1:17 PM, 17 Oct 2011
Two years ago, had Rio Tinto announced plans for a multi-billion dollar asset sales program, the explanation would have been obvious given that the group was wrestling with a mountain of destabilising debt in the midst of the financial crisis. Today’s announcement that 13 assets within its aluminium product group have been earmarked for sale has, however, a much more prosaic explanation. Rio announced a ‘streamlining’ of the aluminium division. It will transfer its interests in six Australasian operations, including its Gove bauxite mine and alumina refinery and a number of smelters, into a new unit, Pacific Aluminium. Another seven operations in the UK and Europe form another group of assets destined to be sold.
While no valuations have been attributed to the assets, it is probable that the disposals will ultimately reap several billion dollars. Today, however, with minimal debt levels and massive cash flows, Rio doesn’t actually have any pressing need for the cash the asset sales will eventually release, which explains the absence of any particular urgency in the sales program. Instead, Rio says that the assets will be sold at “an appropriate point in the future” – once the economic climate improves – while being separately managed in the meantime.
Having radically re-shaped, for the better, its balance sheet – a process that did involve some asset sales under pressure – and embarked cautiously on an acquisition program, Tom Albanese and his team are now concentrating on tidying up Rio’s portfolio of operations to tighten the group’s focus on tier-one assets. It is self-evident that the aluminium group assets identified for sale don’t meet that description.
Despite being awash with cash to the point where it can contemplate a rolling series of share buybacks, Rio does have a lot of capital expenditure on its plate.
It is aggressively expanding its existing core tier one assets – its iron ore operations in the Pilbara – with more than $US10 billion of spending already committed. It is also embarking on the multi-billion dollar development of the giant Oyu Tolgoi copper-gold project in Mongolia, which promises to be a tier one project, and also faces big investments in its newly-acquired Riversdale coking coal business in Mozambique. The cash eventually released from the aluminium group assets will be therefore be usefully redeployed in developing core assets for a more tightly defined portfolio.
The sales would also further downsize the very large exposure Rio still has to aluminium-related assets after the $US38 billion acquisition of Alcan in the lead-up to the financial crisis.
While the core of the Canadian aluminium portfolio it acquired is high-quality, as a product group aluminium’s returns have been lacklustre at best and it makes sense that after focussing on exiting the non-resource elements of the portfolio of assets it acquired, it now tidies up the remaining asset base. Where earlier asset sales had a tinge of desperation to them, those announced today are more about good housekeeping than any need for cash.
October 19, 2011 at 7:03 pm #4873
Here are couple versions of articles which are in alignment on the ~$US 8 billion in 13 assets being sold = 6 Australian-NZeland thru new Pacific group & 7 in Europe thru Rio Tinto Alcan group.
[color=#0000cc size=3]Going to have lot implications on Power, Anode Petcoke use & Aluminum sector consolidation – depending on how/whom assets are sold (or if not closed).
The sales would leave remaining Rio Tinto Aluminum business mainly focused on its more profitable Canadian operations. Goals are to double the Aluminum group earnings to 40% by 2015 (still long way from Iron Ore business sector)
Rio bought Alcan in an ill-timed deal back in 2007 at top of market for $US 38 billion – then due debt load it had to slash cost & sell business sectors as market turned amid global financial crisis. Rising Chinese production and over-capacity in Aluminum has undermined Aluminum prices to tumble over 15% in 2Half 2011 & another 8% drop 2012 is predicted.
The versions have some differences on “why” of sales : debt reduction vs good housekeeping vs chasing better cash options (Iron/Steel Sector &/ Mongolian Gold investment).
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