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".
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”