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Rio puts coal assets on chopping block

Giant resources miner Rio Tinto Limited (ASX: RIO) has put it stakes in several Australian coal mines on the block, as it seeks to cut costs and boost shareholder returns.

The Australian reports that Rio could fetch $2.8 billion from the sale of its thermal coal assets, including a 29% stake in its Coal & Allied unit, which owns coal mines in New South Wales. Rio currently owns 80% of Coal & Allied with the rest owned by Japan’s Mitsubishi Corp.

Reports suggest Rio has hired Deutsche Bank to handle the sale, along with its interests in the Clermont and Blair Athol thermal coal mines in Queensland, which could fetch more than $1 billion.

Rio’s $16 billion coal business continues to suffer from lower prices, the strong Australian dollar and cost increases racked up over the past decade. The sales fit with new CEO Sam Walsh’s comments earlier this year that he was looking at divestments.

“There are a number of assets for us that are not core or they are underperforming and you have got to say that any asset that falls into that category is going to fall within the radar screen,” the former Rio iron ore chief said.

Miners globally have been hit by a double-whammy of falling commodity prices and rising costs, and have come under criticism from investors for their ‘growth-at-any-cost’ moves in recent years. As a result, miners including Rio, BHP Billiton (ASX: BHP) and iron ore major Fortescue Metals Group (ASX: FMG) have all been focusing on cutting costs and selling off non-core or underperforming assets.

Analysts estimate the two majors could reap $28 billion from asset sales. Rio has already flagged the sale of its Pacific Aluminium business and its diamond business, but analysts have suggested more assets could go. BHP confirmed last month that it had more than 10 assets on the chopping block, to add to the US$4.5 billion of asset sales since August last year. BHP’s most recent sale was its minority stake in Woodside Petroleum’s (ASX: WPL) Browse LNG plant for US$1.6 billion.

Foolish takeaway

Investors and shareholders alike are demanding resource companies pay more attention to shareholder returns, and it seems like they are listening. With falling commodity prices, miners are focusing on raising volumes and improving their operating costs and return on capital, which should benefit shareholders over the long term.

Oil prices are set to rise dramatically over time. With limited supply — recent estimates suggest we only have enough oil to last 40 years — and growing demand from quickly expanding economies like India and China, oil prices can’t help but go up. Position yourself to profit from this trend now, with The Motley Fool’s brand-new FREE research report, 3 Oil Stocks to Send Your Portfolio Gushing Higher. Click here now, it’s FREE!

More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP and Woodside.

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