Rio Tinto follows BHP's lead, looks to sell its higher-cost aluminium assets
Like its counterpart BHP Billiton, Rio Tinto is looking to shed some of its non-core assets.The global mining company is looking to sell its Pacific Aluminium division in a potential $1 billion deal, after cancelling it two years earlier.
The move of restructuring marginal assets is becoming a trend among mining groups.
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According to the Financial Times, Rio is said to have hired Credit Suisse to find a buyer for Pacific Aluminum, also known as PacAl.
By cutting its higher-cost aluminium assets, Rio Tinto will focus on its lowest-cost smelters and the mining of bauxite, which is used in the processing of aluminium.
Pacific Aluminium earnings before interest, tax, depreciation and amortisation rose from $252 million in 2013 to $524 million last year.
Unlike BHP Billiton’s South32, Rio Tinto has not created a separate spinout vehicle.
Since 2011, Rio Tinto has considered selling off Pac Al and almost went through with its in 2013 before backing out after failing to attract a high enough price to satisfy new chief executive Sam Walsh.
Rio Tinto acquired Canadian aluminium group Alcan in 2007 for $38 billion, a highly priced deal that contributed to financial problems as the aluminium market rapidly became dominated by low-cost Chinese supply. The disastrous deal, which almost brought Rio Tinto to bankruptcy, led to the dismissal of its previous chief executive, Tom Albanese.
Sources believe the aluminium assets could fetch more than $1.2 billion based on the EBITDA multiple of five times. A notable detail, which could be used to Rio’s
Behind iron ore, aluminium is the second biggest contributor to Rio Tinto’s underlying earnings. The company generated roughly $47 billion in revenue in 2014, with $12.1 billion accumulated by its aluminium segment.
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A spokesman for Rio Tinto said the company "doesn't comment on market speculation".
Mining companies following the trend set forth by BHP Billiton includes Anglo American, Barrick Gold and Freeport-McMoRan.
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