By Cynthia Koons
--Rio Tinto's unit seeks buyer for 57% Ivanhoe Australia stake -sources
--Move is in line with Rio Tinto's plans to sell non-core assets
(Adds confirmation from Ivanhoe Australia.)
Rio Tinto PLC /zigman2/quotes/202627887/composite RIO +1.86% is accelerating a plan to sell billions of dollars in non-core assets despite a slowdown in commodities that could lower the price tag on the deals, with an Australian copper and gold producer controlled by one of its units becoming the latest to go on the block.
Citigroup has been appointed to run the sale of the 57% stake in Ivanhoe Australia Ltd. , which is controlled by Rio Tinto's majority-owned Turquoise Hill Resources Ltd. , people familiar with the matter said.
The stake sale would be one of a string of divestments sought by Rio Tinto's new chief executive. Citigroup is also running Turquoise Hill's planned sale of its roughly 58% stake in SouthGobi Resources Ltd. (1878.HK), a Mongolian coal miner, the people said, but that process has been delayed until further notice.
Ivanhoe Australia's most recent market value is 148.7 million Australian dollars (US$156.5 million). The company was worth as much as A$1.5 billion in early 2011, but declining commodity prices have weighed heavily on the stock.
Ivanhoe Australia confirmed the planned sale Thursday. It said in a filing to the Australian Securities Exchange that Turquoise Hill Resources has begun a strategic review of its ownership in Ivanhoe Australia.
Ivanhoe Australia produces copper and gold and has a pipeline of development projects. The main projects under development are Mount Elliott and the Merlin project, which contain gold and base metals, including copper. The sale could trigger a full takeover of the company. Corporate law in Australia dictates that in most instances a buyer that acquires 20% of a company must bid for a full takeover.
SouthGobi is sitting on potentially 800 million metric tons of coal resources, but has been at the center of a political battle in Mongolia. The government a year ago said it had suspended the company's mining and exploration licenses, citing national security concerns, but in September wrote to the company to say all its licenses were in order. SouthGobi said operations at its flagship coal mine had resumed last month. Aluminum Corp. of China Ltd. (2600.HK), commonly known as Chalco, bid to buy Turquoise Hill's majority stake in SouthGobi for US$920 million last year, but the offer failed due to political opposition in Mongolia and the economic slowdown in China.
A SouthGobi representative declined to comment on the possible sale. Turquoise Hill also declined to comment.
Rio Tinto inherited the Ivanhoe Australia and SouthGobi stakes last year when it took majority control of Turquoise Hill, which was operating under the name Ivanhoe Mines Ltd. Turquoise Hill's most prized asset is the Oyu Tolgoi mine in Mongolia, which holds some of the world's biggest unexploited copper and gold deposits. Rio Tinto executives said previously that the company was only interested in Turquoise Hill for its exposure to Oyu Tolgoi.
Rio Tinto's new CEO, Sam Walsh, who took over in January, has made offloading assets a key priority. The mining giant has put stakes in several Australian thermal coal mines up for sale. They include up to 29% of its Coal & Allied unit and its interests in the Clermont and Blair Athol thermal coal mines in Queensland state, The Wall Street Journal reported this month, citing people familiar with the matter. Those deals could be worth around $3 billion in total. Thermal coal assets have struggled in recent years due to falling prices for the commodity. A glut of natural gas in the U.S., stronger environmental regulations and a weaker global economy have all weighed on its price.
The miner has also appointed Credit Suisse and Canadian Imperial Bank of Commerce to sell all or part of its 59% stake in Iron Ore Company of Canada, The Wall Street Journal reported last month.
Rio Tinto hasn't confirmed it is selling the Australian coal assets, its Canadian iron-ore operations or the Turquoise Hill stakes. It has long said that it aims to focus on only large, high-quality assets that it can expand.
Mr. Walsh's predecessor, Tom Albanese, departed early this year on the back of $14 billion worth of impairments due to poorly timed acquisitions. The bulk of that writedown, up to around $11 billion, was related to aluminum assets the company bought in 2007 which were cause for impairments throughout Mr. Albanese's tenure. An additional $3 billion of writedowns were attributed to a coal acquisition in Mozambique made only two years prior.
Deutsche Bank estimates Rio Tinto could raise as much as $10 billion from its asset sale program. Rival BHP Billiton Ltd. (BHP.AU) is following a similar path, having identified 10 noncore businesses it could exit in an effort to cut costs. BHP Billiton announced Chief Executive Marius Kloppers would be stepping down in May after more than five years at the helm. Mr. Kloppers declined his bonus last year, largely due to a writedown on U.S. shale assets acquired only the previous year.
Write to Cynthia Koons at firstname.lastname@example.org and David Winning at email@example.com
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