Rio Tinto Group offered its Canadian iron-ore operations for sale, according to a person close to the matter, as the second-biggest mining company seeks asset disposals to curb costs and bolster its balance sheet.
Rio hired Credit Suisse Group AG and Canadian Imperial Bank of Commerce to sell all or part of its 58.7 percent stake in Iron Ore Co. of Canada, said the person, who asked not to be named as the process is private. David Luff, a Melbourne-based Rio spokesman, said he wouldn’t comment on speculation.
Chief Executive Officer Sam Walsh said last month he’ll continue disposals, noting Rio had already earned $12 billion from divesting more than 20 projects. The stake in IOC, which sells to North America, Europe and Asia, is valued at $1.8 billion by Investec Bank (Australia) Ltd. Labrador Iron Ore Royalty Income Corp. owns 15.1 percent of IOC and Mitsubishi Corp. 26.2 percent.
“IOC’s ore is mainly sold to contract buyers, which are mostly the major Chinese mills,” said Lu Xiaojing, a Shanghai-based analyst with researcher Mysteel.com. “If IOC is looking for potential buyers in China, big steelmakers are likely.”
Rio dropped 2.8 percent to 3,442 pence in London, where it’s based. The stock fell 1.5 percent to close at A$66.08 earlier in Sydney. Labrador Iron Ore, which relies entirely on IOC for its income, rose 1.9 percent to C$35.86 in Toronto, giving it a market value of about C$2.3 billion ($2.23 billion).
IOC’s reserves are sufficient for more than 20 years at current production rates, according to Rio’s website. The operation has a mine and pellet-making plant at Labrador City, Newfoundland. The company also has a 420-kilometer (260-mile) railway and port at Sept-Iles on the Gulf of St. Lawrence. Rio acquired the assets through its 2000 takeover of North Ltd.
“I’ll be looking at existing projects with a fresh pair of eyes and considering all alternatives,” Walsh said this week at a conference in Hollywood, Florida. “These could include continuing with the current plan, slowing it down, introducing new partners or canceling projects altogether.”
Walsh replaced Tom Albanese as CEO on Jan. 17 after his predecessor quit following a $14 billion writedown on the value of takeovers. A month later, BHP Billiton Ltd., the biggest mining company, also announced the departure of its CEO Marius Kloppers, who failed to deliver on about $200 billion of potential acquisitions.
Dow Jones Newswires reported Rio’s possible sale earlier.
Mining companies globally are selling under-performing assets to help counter rising costs and trim debt. Rio is simultaneously seeking to sell diamond and aluminum assets. It agreed in December to dispose of a 57.7 percent stake in Palabora Mining Co. for $373 million to a group led by Chinese steelmaker Hebei Iron & Steel Group.
BHP is expected to continue to sell unwanted assets, Macquarie Group Ltd. analysts wrote in a report yesterday following a meeting with Kloppers and his successor Andrew Mackenzie. The Melbourne-based company agreed to sell its 80 percent stake in a Canadian diamond mine for about $500 million.
“Everything and anything is on the table,” Rio’s Walsh said at the investor conference in response to a question on the possible sale of IOC. “If there is somebody out there who wants to value a project greater than we do, then we’ll certainly consider that. But in response to IOC or response to any particular asset we’re not going to make any comment.”