Rio Tinto restructures, Chinalco may increase stake

Mining giant Rio Tinto plc of Australia is the poster boy for the mining sector's highs and lows. Global demand for steel was at an all time high, making Rio's iron ore (a key component in steelmaking) a hot commodity. That's why the firm spent $38.1 billion to acquire Canada's Alcan Inc. in 2007 and posted record first-half profits on Aug. 26.

Now, commodity prices are joining reality, demand for iron ore has slumped, and Rio's shares have fallen from a high of 7,078 pence ($104.58) on the LSE in May to trading at 1,405 pence on Wednesday. Rio says it wants to cut net debt by $10 billion; that its cutting 14,000 jobs; that sales processes are most advanced for packaging, energy America and minerals -- while it considers other asset sales; and that its actively working on measures to generate cash from joint ventures on its existing assets and projects. It was reported that Rio may also sell its stake in China JV partner Qingtongxia Aluminum.

Rio Tinto's debt load was seen as a major reason No. 1 miner BHP Billiton Ltd. dropped its $140 billion hostile bid for Rio. And Rio's largest shareholder, Aluminum Corp. of China Ltd., has to be kicking itself for taking a 9% stake in the miner for $14.1 billion in February. Chinalco has lost about $8 billion dollars so far as markets tumble. In August, an Australian official gave Chinalco approval to raise its stake to 14.99%, and Chinalco said recently it was aggressively preparing to raise its stake. It's not like Rio's share can fall much further.

No. 1 steel company ArcelorMittal also serves as a good example of riding a high as it acquired companies left and right during the boom to a major reverse in course as it restructures and cuts jobs. Rio may be getting some bad news from China as well. The world's largest steelmaker and largest consumer of iron ore may ask for an 82% cut of the import iron ore price as steel prices plummet to 14-year lows.

Rio Tinto shares were up about 20% in Wednesday morning trading on the NYSE

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