A few weeks after Teck Corp. chief executive Don Lindsay signals he is interested in buying iron ore assets, Rio Tinto is looking for a buyer for its large Canadian iron ore operations. Coincidence? Maybe not.
There are rumblings that Teck had been pitched on a takeover of Rio's majority owned Iron Ore Co. of Canada in recent weeks. One angle is Teck could buy Iron Ore Co., then sell the company's port and rail assets to another buyer (perhaps a pension fund) or even take them public in an initial public offering. That would raise cash to defray the costs of buying the mining assets.
Teck will likely have competition. Among other potential bidders are Korea's Posco, China Steel or Hebei or Citic's mining group, as well as potentially infrastructure players attracted by the railroad and port assets that Iron Ore Co. owns.
Mr. Lindsay's turnabout on iron ore came as a bit of a surprise, but he was quite clear in the company's Feb. 7 conference call.
"I enjoyed a good holiday from iron ore for quite a few weeks there, but values have come down," said Chief Executive Don Lindsay on a conference call, according to a Reuters report. "There's a few new assets that have come available, so we still think that's a good fit in our portfolio."
Reports Friday have Rio putting its 58 per cent stake in Iron Ore Co. on the market, with bankers now working on the file.
The valuation could potentially be very big. The Wall Street Journal put the price of the Rio stake at $1.7-billion, valuing all of the company at roughly $3-billion. However, there are some analysts who believe that with the run that iron ore prices have been on, as well as other factors, the price could soar much higher.
(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)
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