Banks reach out to potential suitors for Rio Tinto asset sale

Mining giant Rio Tinto weighs up $3.5bn mines windfall CREDIT: GETTY Generic logo helmet

Investment banks advising Rio Tinto on its non-core asset sales are understood to have started reaching out to prospective suitors. DataRoom understands that bankers, tipped to be those from UBS and JPMorgan, working on the mandate, are telling interested buyers that Rio Tinto wants to divest the non-core assets all in one line to one buyer.

However, some see such an assignment as a challenging one, given the eclectic nature of what’s on offer.

The largest asset is its mineral sands operation that produces ­titanium and is being shopped to prospective suitors internationally.

Sources believe the business could sell for about two to three times its earnings before interest, tax, depreciation and amortisation.

The business generates between $600m and $700m in annual earnings.

Rio owns mineral sands assets in South Africa, which is the Richards Bay Minerals business, Madagascar Minerals and Canada, where it owns the Sorel-Tracy operations in Quebec.

As earlier reported, the new chief executive, Simon Trott recently flagged that its borates and iron and titanium businesses (mineral sands) were non-core and it would sharpen its focus to iron ore, copper, aluminium and lithium.

The asset sales will fund debt payments and capital spending.

One possibility is that Iluka Resources takes a look at the mineral sands, or titanium operation, although some believe it could come up against opposition from the Australian Competition & Consumer Commission, and was not flush with cash for asset acquisitions.

Mr Trott said in August that outside the Rio core mining division, the borates and iron and ­titanium businesses would be moved to the control of chief commercial officer Bold Baatar’s portfolio for strategic review and potential divestment.

Rio Tinto owns the Diavik diamond mine in the northwest territory of Canada, but the mine is near the end of its life, and any sale would likely to a buyer keen to explore the surrounding land.

Market analysts believe Rio’s debt is at the higher side of its targeted range and it needs money to fund capital spending for projects, estimated to cost about $1bn a year for the next two years.

The asset sales come as Rio Tinto cuts jobs at its alumina refinery in Queensland, as reported by The Australian.

The company is due to make a decision on whether to commit to the Tomago aluminium smelter in NSW, the employer of thousands of workers.

Rio Tinto’s share price is up 7.7 per cent this year.