The Deal: Rio Tinto Abandons Pacific Aluminium Sale

NEW YORK ( The Deal) -- Anglo-Australian mining company Rio Tinto Group ( RIO) on Thursday abandoned the planned sale of Pacific Aluminium almost two years after grouping businesses that came with its troubled $38 billion purchase of Alcan ready for disposal.

Announcing first-half results that included an 18% decline in underlining earnings, to $4.2 billion, Rio Tinto CEO Sam Walsh indicated the assets failed to attract a high enough price.

"Following a comprehensive review we have ... determined that the divestment of Pacific Aluminium for value is not possible in the current environment and it will be reintegrated into the Rio Tinto Alcan group," he said in a statement. "Our global aluminium business is one of the best performing in a challenging industry. We continue to make good progress to transform our businesses through divesting or closing noncore assets, business improvement and targeted investment. But we need to do more to improve performance and returns."

Rio Tinto in October 2011 bundled six Australian and New Zealand aluminum refining and smelting operations into Pacific Aluminium, in preparation for their sale. It also put seven refinery and smelting operations in the U.S., U.K., France and Germany on the block. Analysts at the time predicted the aluminum disposals could raise $7 billion or more.

The decision to shelve the Pacific Aluminium sale comes after Rio Tinto in June abandoned a 15-month search for an exit from its diamond business, declaring that it will hold on to an operation it had previously declared too small.

Both moves highlight the difficulty inherent in Walsh's strategy of swinging noncore disposals at a time when many commodities' prices are in the doldrums because of slowing Chinese growth. London-based Rio Tinto's first-half results showed prices for all commodities had slipped save for iron ore.

Walsh replaced Tom Albanese as chief executive at the start of the year after the former chief acknowledged the company had made mistakes over acquisitions during the previous decade. Debt associated with the deals, particularly the Alcan purchase, had briefly threatened the existence of the world's No. 2 mining group, after BHP Billiton ( BHP).

Rio Tinto announced $14 billion of write-downs associated with acquisitions made under Albanese's watch at the time of his resignation.

Copper disposals have been a bright spot in Walsh's retrenchment strategy. Rio Tinto sold the Rio Tinto Eagle Mine to Lundin Mining Corp. for $325 million in mid-June and in July agreed to sell an 80% stake in Australian gold and copper producer Northparkes to China Molybdenum for $820 million.

Other assets on the block, which Rio Tinto hasn't named, may include a 29% stake in Rio Tinto's 80% owned Australian coal mining operation Coal & Allied Ltd.; Mozambique coal operations; and, potentially, a 59% stake in Iron Ore Co. of Canada. However, depressed coal prices combined with a glut of coal assets up for sale on the one hand, and a stronger outlook for iron ore on the other, where prices Thursday hit a three-month high, may prompt a rethink. A Rio Tinto spokesman declined to say if the company has remaining aluminium assets up for sale. Since its October 2011 announcement Rio Tinto has closed or scaled back five aluminum smelters in France, the U.K., Canada and Norway, and sold 10 assets, including three specialty alumina plants in France and one in Germany, as well as refineries and smelters in France , the U.S, Norway and China, the spokesman added.

Rio Tinto also said Thursday it would provide a $600 million bridge facility to Vancouver-based Turquoise Hill Resources ( TRQ), in which it holds a 50.8% stake. Rio Tinto also agreed to participate in a potential rights issue by Turquoise Hill. The loan, which matures in December, refinances an earlier $225 million facility provided by Rio Tinto. Cash-strapped Turquoise Hill is itself considering selling a number of assets.

Written by Laura Board.

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