Rio Tinto may sell Mozambique coal unit
27 June 2013
Global mining giant Rio Tinto Plc is considering a total or partial sale of its Mozambique coal mining unit amid mounting local problems affecting its operation, The Wall Street Journal reported citing sources familiar with the situation.
The journal stated that Rio is in talks with several investment banks to select a financial adviser to assist with the sale process.
Rio Tinto Coal Mozambique operates Benga mine in Tete province in the western part of the country. Rio acquired the mine in 2011 from Australia's Riversdale Mining for $3.7 billion.
Rio's plan is contrary to its stance few months ago when the company denied reports of a possible sale of the subsidiary saying that it was considering the best ways of developing those assets.
Rio's new chief executive Sam Walsh had said in a press briefing, ''I would be hopeful that there is upside in the project. I should just confirm that Mozambique is not part of the divestment programme.''
In January, the global miner announced $3 billion write down on account of its problems in Mozambique as part of a much bigger $14 billion overall write down, which led its long-serving chief executive Tom Albanese to quit the company.
The Mozambique impairment was due to infrastructure constraints in supporting the acquired coal assets which were more challenging than originally anticipated, and the downward revision of recoverable coking coal reserves.
Transportation of coal from the mine to Beira port on the eastern coast at a distance of about 670 km has been a major bottleneck for the company.
Its plan to move coal on barges along the river Zambezi was abandoned as the government insisted to build a new railway line to the coast for coal transportation.
The miner yesterday suspended its coal exports due to sabotage threats from the country's main opposition party Renamo to the Sena railway line linking the mine and Beira port.
Brazilian mining giant Vale SA also operates its Moatize coal mine in Tete province.
The government had said that Rio and Vale should consider jointly developing a rail link to haul coal from the Tete coal fields to the north eastern port of Nacala as an alternative.
Rio has been taking measures to cut costs by $5 billion by the end of 2014 in order to strengthen the company's balance sheet. The plan includes sale of underperforming and non-core assets, reining in capital expenditure plans, reducing exploration expenses and improving operating efficiency.
About a fortnight ago, Rio agreed to sell its Eagle nickel-copper project in Michigan, US to Lunding Mining Corp for about $325 million. Earlier in December, the company sold its Palabora copper mining company in Limpopo province of South Africa to South African and Chinese investors for $373 million.
Rio's attempts to find a buyer for its struggling Pacific Aluminum unit has not succeeded and recent reports suggest the company's possible whole sale exit from the Aluminum business through an initial public offering of Rio Tinto Alcan next year.
Earlier this week, Rio has abandoned plans to divest its diamonds business worth $2.5 billion, as selling commodity assets become tough in a depressed global economy.
Since 2009, Rio has divested assets worth over $5 billion and according to recent reports, the miner may be looking for a target of over $10 billion.