Rio Tinto hopes for $4.3bn in Grasberg mine stake sale
Rio could get as much as $US3.5 billion from the sale of its stake in the Grasberg mine in Indonesia, Deutsche Bank says.
Rio Tinto could get as much as $US3.5 billion ($4.3bn) from the sale of its future 40 per cent stake in the controversial Grasberg copper and gold mine in Indonesia, if the government pays market value, Deutsche Bank says.
Rio is in talks with the Indonesian government to sell the interest as a way to satisfy Indonesia’s demand that operator Freeport-McMoran increase local interest in the project to 51 per cent.
Deutsche Bank analyst Paul Young said Rio’s option was worth $US6bn on an “unrisked” valuation, which assumes future mine production, costs and commodity prices will perform as expected.
“We think a cash sale above $US3.5bn, while NPV-dilutive, would likely be well-received by the market, considering the country risk,” Mr Young said.
“There is currently very little in the Rio share price for Grasberg, in our view, and there is virtually no earnings contribution from the asset from 2017 to 2020.”
But other analysts say this sort of price would be difficult for Indonesia.
Illustrating the wide range of potential values for the stake, Credit Suisse puts a $US2.6bn unrisked value on the Grasberg interest, but it values the stake at $US1.3bn.
On Rio’s books, the Grasberg stake is carried at $US1.15bn. Mr Young noted that Rio’s book valuation, and the complex nature of Rio’s interest (where Rio gets the stake in 2022 or 2023), could complicate attempts to get a decent price.
“If historical cost is the government’s starting point for negotiations, there could be a very wide valuation gap between the parties,” he said.
“The sale mechanism could also be complicated and may mean deferred proceeds over several years.”
Until at least 2022, when Rio takes an official stake and is liable for capital expenditure contributions, the big miner gets a share of production over certain levels.
Government export restrictions and operational problems have kept this to nothing in recent years. Separately yesterday, Rio was bracing for a report on its Mongolian tax payments from The Netherlands-based Centre for Research on Multinational Corporations, also known as SOMO.
According to Canada’s Financial Post, the SOMO report will say Rio’s Toronto-listed subsidiary Turquoise Hill lobbied for and was given concessions that saved hundreds of millions of dollars and that its finance structure allowed it to avoid hundreds of millions of dollars of Canadian taxes.
Rio, which has seen a draft copy of the report, described it as “flawed” and containing “unsubstantiated and incorrect allegations regarding tax”.
“Oyu Tolgoi’s shareholding and funding structure was agreed in advance with the governments of Canada and Mongolia and the tax outcomes are in line with those in Australia, Canada, Chile and the US,” a Rio spokesman said.
“Oyu Tolgoi is one of Mongolia’s largest taxpayers and is paying its fair share of tax. From 2010 to 2017, OT paid upward of $US1.8bn in taxes and royalties. By the time the underground project begins production in 2020, shareholders will have invested approximately $US12bn but only the government of Mongolia has received any return to date.”
A Mongolian tax claim for $US155m over the $US11bn Oyu Tolgoi copper and gold mine, revealed this month, has shone a light on the landlocked Asian nation’s dependence on the mine.
Political pressure for a better government share of the Oyu Tolgoi spoils have previously delayed construction of the $US6bn underground expansion for two years until 2016.
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