Rio Tinto to sell assets to pay $42-billion debt news
15 December 2008

The global recession, which has led to a sharp decline in the demand for minerals, has dug a deep hole in the world's third largest mining company, Rio Tinto, which is looking to sell some of its assets which may not fetch a fair price during the current troubled times in order to reduce its $42-billion debt by $10 billion during the course of next year.

Last week the company, in a major shake up, announced that it would axe more than 14,000 jobs globally, slash $5 billion in spending and increase asset sales as part of an aggressive cost cutting campaign. (See: Major shake up at Rio Tinto to reduce debt)

Alcan chief executive Dick Evans had said that he may have acted in haste when he signed the record-setting deal of the Canadian icon to Rio Tinto for $38.1-billion, which accounts for a significant portion of the $42-billion debtin Rio's balance sheet and now surpasses Rio's own market capitalization.

Although it did not spell out which assets it is likely to put up for sale, analysts believe that most of the fire sale of assets will come from the under performed businesses of Rio Tinto Alcan's aluminium business in North America.

It had previously flagged the sale of Alcan's packaging business, engineered products operations, US coal business, the Northparkes copper-gold mine in NSW and the Sweetwater uranium mill in the US.

Rio has sold its 40-per cent stake in the Cortez gold mine in Nevada for $1.7 billion in February, its 70-per cent stake in Greens Creek base metal mine in Alaska for $750 million and its 70 per cent stake in the Kintyre uranium project for A$346.5 million.

Analysts also feel that the company may sell Pacific Coal, Coal & Allied, Grasberg, Energy Resources of Australia and the Rossing uranium business in Namibia, among others and these assets would have fetched 30 to 40 per cent better value but for the current global market depression.

In a note put up last week by ABN AMRO after the announcement made by Rio Tinto on divesting some of its assets, the banker said that the easiest assets to sell in a bear market were those that were generating cash.

Rio's CEO Tom Albanese has said that any of the assets could be up for sale, which made analyst speculate whether its iron ore operations in Western Australia's Pilbara region and its copper projects could also be on the fire sale market.

The Chinese, who are investing in the Australian mineral and oil sector, could be interested in Rio's aluminium refinery in Gove in the Northern Territory.

Its long-running suitor and larger rival, the world's largest mining company, BHP Billiton may also mull about buying some of Rio Tinto's asset like the 30 percent stake in the Escondida copper mine in Chile where BHP Billiton already has a 57.5 percent stake.

BHP Billiton may also buy Rio Tinto's stake in the joint venture of Richards Bay Minerals in South Africa where BHP Billiton has a 26 per cent stake.

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Rio Tinto to sell assets to pay $42-billion debt