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Report: Rio Tinto ready to talk M&A deals

The worlds second largest mining company is getting back in the saddle again.Rio Tinto indicated at a recent analyst meeting that it is ready to conside...

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|May 1|magazine5 min read

The world’s second largest mining company is getting back in the saddle again.

Rio Tinto indicated at a recent analyst meeting that it is ready to consider mergers and acquisitions again, said a Morgan Stanley report, but only if it can secure the right asset at the correct valuation and win investor support. With the mining sector hovering at the bottom of the cycle, the time could be now for Rio to pull the trigger.

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The company has been linked with several potential suitors such as Freeport-McMoRan Inc., Anglo American Plc and Glencore. CEO Sam Walsh has repeatedly said his company is neither interested in acquisitions nor has any short term plans of merging with anyone.

“If they can buy tier-one assets at valuations that are closer to the bottom of the cycle, then that’s not a stupid thing to do,” said Jason Beddow, chief executive officer of Argo Investments. “As asset valuations get pushed lower, larger producers may be changing their attitude toward deals.”

Mining deals fell to $51.3 billion in 2014, the lowest total in 10 years, according to Bloomberg.

Still, Rio Tinto doesn’t have the best deal-making history, suffering from the $38 billion purchase of Alcan in 2007 -- which resulted in $8.9 billion write-downs -- and its dreadful coal deal in Mozambique. However, the company is in the right place to make a deal.

After reducing its project budget to the lowest since 2010, cut spending and complete a $ 2 billion share buyback, investors may accept acquisitions, according to Beddow.

“They may need to consider that this could be a better use of capital than just buying back shares.”

An acquisition would be Rio’s first since 2012.