Rio Tinto has hired Deutsche Bank to help sell Australian coal assets worth billions of dollars, the Wall Street Journal said on Wednesday, as the company seeks to slash costs and exit non-core and under-performing businesses.
The move comes less than three months after the Anglo-Australian mining goliath's new chief executive, Sam Walsh, vowed to pursue an "unrelenting focus on pursuing greater value for shareholders" via aggressive cost reductions and divestment of non-core businesses.
Slower industrial growth in China that has put pressure on commodities prices and cut profits for mining companies has led to a major re-think by Rio Tinto's board over how the company's money is spent.
Last year nearly 90 per cent of earnings came from iron ore and much of the rest from copper mining in Chile and the United States. It wrote down aluminium assets and coal mining inMozambique by $US14 billion.
A basket of other commodities, from uranium and salt to aluminium and titanium, contribute little if anything to the bottom line.
Rio Tinto is targeting $US5 billion in cost cuts by the end of 2014, two-thirds of that from its energy units, which include coal and uranium, and from aluminium. Each has been hit by low prices and soaring costs, particularly in Australia.
In Coal and Allied, Rio Tinto is seeking to sell up to 29 per cent of its stake, the WSJ reported, citing unnamed people familiar with the matter.
"There's been some speculation that they will try and exit thermal coal, it just doesn't make sense for them. They make all their money out of iron ore and thermal coal just doesn't fit the model," said a coal industry executive who asked not to be named.
"The problem is, in this climate, who's the buyer," he said.
Rio Tinto has made no secret of its desire to down size its aluminium division after buying Alcan in 2007 for $US38 billion.
Its Pacific Aluminium unit was established to bundle 13 underperforming aluminium assets for closure, sale or spin off into a separate entity for an in-specie distribution to Rio Tintoshareholders.
"If Rio could divest everything except for its iron ore operations in Australia and Canada, and its flagship copper assets at Escondida and Kennecott, it would generate a higher profit, and at a substantially higher return," Commonwealth Bank of Australia said in a research report.
Rio Tinto owns 80 per cent of Coal & Allied, and wants to cut its holding to as low as 51 percent, according to the WSJ.
The miner is also seeking a buyer for its controlling stakes in the Clermont and neighbouring Blair Athol mines in Queensland state for more than $US1 billion, the WSJ said in a separate report. The Blair Athol mine was closed by Rio Tinto in November.
Rio Tinto and Deutsche Bank declined to comment on the reports.
Rio Tinto and Japan's Mitsubishi Corp bought Coal & Allied Industries in late 2011 in a deal valuing it at $US10.6 billion.
Clermont holds 177 million tonnes of thermal coal, with a maximum capacity of up to 12.2 million tonnes a year, and has an expected life of 17 years, according to Rio Tinto.
Australian benchmark thermal coal prices are currently hovering below $90 a tonne, down from an all-time high of above $174/tonne in 2008 and near the cost of production for many Australian coal mines.
Reuters