Rio Tinto Group, the second-biggest mining company, is considering a sale of all or part of its coal business in Mozambique after flagging a $3 billion writedown for the assets last week, a person familiar with the matter said.
The London-based company has begun a review of the assets acquired in 2011 for A$3.9 billion ($4.1 billion) with the purchase of Riversdale Mining Ltd. and all options are being examined, the person said, declining to be identified because the information is private. The person said the company hasn’t set up a timetable for the completion of the review.
Rio has been reviewing the business to study options for transporting exports, potential joint ventures or asset sales, the Australian Financial Review said today, citing unidentified officials. Deutsche Bank AG values the asset at $370 million.
Rio Chief Executive Officer Tom Albanese and head of strategy Doug Ritchie, who led the acquisition of Riversdale, stepped down last week after the company said it would book charges totaling $14 billion. The company said the Mozambique asset writedown was unacceptable, citing transportation constraints and a cut to recoverable coking coal estimates.
“You don’t want to spend management time developing something that is going to take years and years to ramp up, it’s non-core and just a distraction,” said Rob Clifford, a mining analyst at Deutsche Bank. “The sooner you can sell those things probably the better. If they get a good price now, do it.”
Rio will also study options including boosting coal exports by co-operating on rail and port infrastructure with potential partners, the person said. Other companies with coal mines near Rio in the Moatize Basin include Vale SA and Anglo American Plc.
“ENRC has got its own cash-flow issues, Anglo is about to change chief and probably unlikely to do anything on the M&A front,” Clifford said. “Vale probably of the three would be the most likely but they’ve got enough to get on with without having to chip more in.”
Rio, which began exports from its Benga mine by rail in June, planned to boost shipments to about 12 million metric tons annually by barging coal down the Zambezi River from 2014.
The Mozambique government rejected the river proposal in March. Rio also considered a new rail line and port with potential exports of more than 100 million tons annually from 2018, it said in a September presentation on its website.
Rio is talking with the government about potential export options, the person familiar with the matter said.
Mozambique is asking to study the data that prompted Rio to cut an estimate of recoverable coal in the country before deciding what steps it can take to help the project, Deputy National Director of Mineral Resources Obete Matine said.
“We are not distrusting the studies, but we have to see all the details and after that we can probably see whatever we can do to help the project,” Matine said in an interview.
The country won’t privilege any one company and will work for the benefit of all in the industry, he said yesterday. “We have to look for global solutions for all the players.”
Rio bought Riversdale to boost its coking coal resources, gaining assets in what it called the “home of the best undeveloped coking coal resources in the world” in a September 2011 investor presentation. The drop in recoverable steel-making coal at Rio’s Mozambique mines has undermined the viability of building multibillion dollar rail and port upgrades.
Rio is reassessing its “overall scale and ramp-up schedule” in Mozambique, it said Jan. 17.