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.
• Related content: Report: Rio Tinto ready to talk M&A deals
A spokesman for Rio Tinto said the company "doesn't comment on market speculation".
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.