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Rio Tinto chief aims to return to fertilizer field

During the heated takeover battle for Potash Corp. of Saskatchewan Inc., Rio Tinto chief executive officer Tom Albanese suggested he wasn't readying a rival bid because he is "not a farmer, I'm a miner."

Now it seems Mr. Albanese wants to be a farmer after all.

Two years after selling Rio's undeveloped potash assets to Vale SA for $850-million (U.S.) to help pay down debt, Mr. Albanese is hoping to get back into the fertilizer business.

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"We did sell [potash assets]in the financial crisis. Everyone said we got good value from that, so no regrets on that. But I have said to our geologists, 'I still like potash, find me some more,'" Mr. Albanese said in an interview on Thursday.

Rio's potential return to potash comes amid rising prices for the fertilizer ingredient as a result of soaring demand from farmers looking to cash in on higher returns for their crops. Demand is being driven largely by growing populations in China and India and comes alongside estimates that food production must grow by 70 per cent by 2050 to meet global needs.

That has many of the world's major miners scrambling for a piece of the potash business through acquisitions and/or the development of new projects.

BHP Billiton Ltd.'s $38.6-billion (U.S.) bid for Potash Corp. was too rich for Rio to take on, Mr. Albanese said. "We've said all through the course of 2010 we are focusing on small- to medium-sized transactions and PCS wouldn't have been in that category."

Still, sources said during last year's takeover battle that Rio considered joining a rival bid consortium, which would have significantly reduced its investment in the potash business. In the end, BHP's bid was blocked by the federal government and takeover talk for Potash Corp. stopped.

Today, Rio maintains it is targeting acquisitions more around the size of its current $3.9-billion bid for coal miner Riversdale Mining.

Potash is one of a "handful" of new commodities Rio is looking into to help diversify its main asset base of iron ore, copper and aluminum.

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"When we look at the possibility of getting into new commodities, we have to look at whether that commodity has a big enough market ... and whether it would actually make a difference to our overall business," said Mr. Albanese.

His interest in potash goes back more than a decade when, as head of the industrial minerals group, he led Rio's purchase of potash assets in Argentina. In early 2009, however, the company was forced to sell its potash assets in Argentina and Saskatchewan to help pay down a massive debt it was left with after the ill-timed $38-billion purchase of Montreal-based aluminum producer Alcan in 2007, just ahead of the global credit crisis. Rio also cut thousands of jobs and millions worth of investments.

Now that commodities have bounced back due to strong demand from China, Rio is starting to spend again. Earlier this week, the miner earmarked more than one billion dollars in investments at two of its existing iron ore operations in Australia and Canada, including $163-million to raise production capacity at the Iron Ore Company of Canada, of which it owns 58.7 per cent.

On Thursday, the Anglo-Australian miner said its debt had been reduced to $4.3-billion at the end of last year, compared with $18.9-billion at the end of 2009. It also reported record earnings of $14-billion, as well as a $5-billion share buyback and a more than doubling of its annual dividend.

Amid criticism the buyback was too stingy, Mr. Albanese responded saying the company needs a conservative balance sheet to protect against "elevated" risks of a commodities correction when stimulus spending dries up.

"What we don't want to do is leverage up the balance sheet to give cash back," he said. "We've just been through one global financial crisis. I don't want to be in the position of doing that again."

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