Rio Tinto Limited (ASX: RIO) could be about to follow in the steps of BHP Billiton Limited (ASX: BHP) and hive off its non-core assets.
That's the view of analysts at Sanford Bernstein, after incoming CEO Jean-Sébastien Jacques, overhauled the group's business divisions, leaving the odds and sods of coal, uranium, salt, borates, titanium dioxide and its iron ore of Canada unit in a new 'energy and minerals' business.
Jacques, previously the head of Rio's copper and coal division, was appointed in March to replace current CEO Sam Walsh.
That division could be spun off, similar to how BHP did when it folded its non-core assets into South32 Ltd (ASX: S32). South32 ended up with BHP's unwanted assets including alumina, aluminium, energy and metallurgical coal, manganese, nickel, lead, silver and zinc.
Selling off those assets would leave Rio with its monster iron ore division that generates most of the revenues and nearly all the earnings currently, a newly combined copper and diamonds division and an aluminium business.
The unwanted energy and minerals business are expected to generate earnings before interest, tax, depreciation and amortisation (EBITDA) of US$1.2 billion in 2017, valuing the business at around US$9.3 billion based on an 8x multiple.
The renewed focus on its core operations of iron ore, copper, diamonds and aluminium is also expected to see Rio ramp up its copper production. The miner approved a US$5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia.
That decision should see the company less reliant on iron ore, and become one of the world's largest copper producers.
In 2015, Rio generated 42% of revenues and 71% of underlying earnings from iron ore. Copper generated just 13% of revenues and 4% of underlying earnings.
Foolish takeaway
Given the moves Rio has made to slash its debt levels over the past 12 months suggests the miner may be considering splitting off its unloved assets. North32 here we come?
