Global mining giant Rio Tinto PLC is planning to scale back its aluminum business by selling more than a dozen of its higher-cost, lower-quality aluminum assets outside Canada, in hopes of boosting its lagging profits from the metal.
The move comes about four years after London-based Rio expanded its aluminum division with the $38.1-billion (U.S.) purchase of Montreal-based Alcan in 2007, a move which turned out to be expensive and ill-timed on the eve of the global commodities crash.
Rio said Sunday that a total of 13 assets will be divested “at an appropriate point in the future.” Some of those include operations it picked up in Europe and the United States with the purchase of Alcan, along with others assets in Australia and New Zealand.
“The assets identified for divestment are sound businesses that are well-managed with productive work forces. But they are no longer aligned with our strategy and we believe they have a bright future under new ownership,” Rio chief executive officer Tom Albanese said.
Rio also suggested there wouldn't be a fire sale in the current volatile commodities market.
“The strength of our balance sheet means that we can choose the most opportune method and timing to divest these assets, which may not occur until the economic climate improves. In the meantime, we will continue to run these operations safely and efficiently,” he said.
The company had said earlier this year that it plans to streamline its aluminum business to focus on its higher-quality assets.
As part of the plan, Rio will transfer its interests in six Australian and New Zealand assets into a new business unit called Pacific Aluminium. These include the Gove bauxite mine and alumina refinery, among other properties in Australia, as well as its smelters in New Zealand.
A second group of seven assets in Europe and the U.S. will continue to be managed by Rio Tinto Alcan until a buyer can be found. These include three specialty alumina plants and the Gardanne refinery in Europe, and the Sebree smelter in the U.S. In the U.K., the Lynemouth smelter and power station may be sold, or possibly closed, Rio said.
“Streamlining the product group allows Rio Tinto Alcan to concentrate its efforts even more on driving performance improvements and investing in growth to increase shareholder value,” stated Rio Tinto Alcan chief executive officer Jacynthe Côté.
Analysts were expecting this type of move from Rio.
"Rio's move is all about lifting its profit margins" said Tony Robson, mining analyst with BMO Capital Markets. "Jettisoning marginal European assets makes sense with the divestments in Australia possibly triggered by the Labor Government's carbon tax," he said.
Rio's move is being viewed by some analysts as a way of diverting more resources to iron ore, which now accounts for nearly 80 per cent of its earnings.
The company's shares jumped 2.5 per cent in early Monday trading in Australia, as investors appeared to applaud the move away from a poorly performing business with a relatively gloomy outlook.
Aluminum prices have fallen more than 10 per cent in the past three months and UBS, which rates aluminum one of its "least preferred" commodity investments, forecasts a further 8 per cent price decline next year.
The plan will see Rio focus its aluminum business mainly on its more profitable Canadian assets, where it has reintroduced investments after a pullback during the global recession of 2008-09.
"You'd have to think ... they're going to direct capital to where it works better for them," Ric Ronge, portfolio manager at Pengana Capital, which owns Rio Tinto shares, told Reuters.
Rio also signalled that aluminum remained a core asset, saying global demand was relatively good and that it would consider making further investments in quality aluminum assets.
- With files from Reuters