Rio Tinto puts aluminium assets on block in potential $1bn deal

Rio Tinto is making a fresh attempt to sell unwanted aluminium assets in a potential $1bn deal, the latest sign of global miners’ attempts to restructure in the face of a commodities downturn.

The Anglo-Australian company has engaged Credit Suisse to find a buyer for its Pacific Aluminium business, a group of smelters in Australia and New Zealand, according to people aware of Rio’s plans.

The move is part of trend among mining groups, which are cutting back on non-core assets. BHP Billiton, the world’s largest mining company, is spinning off a collection of assets into a separate company called South32, which is due to start trading Monday.

Rio has not created a separate spinout vehicle but has sold $4bn of assets in the past two years, chief executive Sam Walsh said this month.

The company has tried to sell Pacific Aluminium, known as PacAl, in the past, but halted its efforts in 2013 after there was scant interest in its lossmaking operations. “The market was aware PacAl wasn’t going to sell?.?.?.?I am a realist. Let’s get on with life,” Mr Walsh said at the time.

Since then a rebound in the aluminium market has boosted the earnings — and potential value — of the PacAl assets. At the end of last year Rio reversed a $1bn accounting impairment of the value of the operations, saying that lower costs and healthy prices had increased the value of the assets.

Rio wants to shed its higher-cost aluminium assets, concentrating on its lowest-cost smelters as well as on the mining of bauxite, the raw material used to produce alumina, which is then processed into aluminium.

The company declined to comment on its plans for PacAl. A sale process is in its early stages, according to the people aware of the plan.

The miner derives most of its income from its iron ore division but boosted its aluminium business substantially when it bought Alcan, the Canadian aluminium group, for $38bn in 2007. The highly priced deal at the top of the mining cycle subsequently contributed to financial problems, while the aluminium market rapidly came to be dominated by low-cost Chinese supply.

Rio has taken a quarter of its aluminium capacity and one-third of its alumina capacity out of the market since 2009, according to Alf Barrios, chief executive of the miner’s aluminium business. The Gove alumina refinery, which was part of the PacAl business, was closed in 2013.

PacAl’s earnings before interest, tax, depreciation and amortisation rose from $252m in 2013 to $524m last year. The division has revenues of $2.5bn.

Other global miners are pursuing plans to restructure marginal assets. Anglo American is trying to sell copper, coal and platinum mines, while Barrick Gold has put half of its Zaldivar copper mine in Chile up for sale. Freeport-McMoRan is considering an initial public offering of its oil and gas business.

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