The Motley Fool

Rio freshens up the balance sheet… again

Rio Tinto (ASX: RIO) has again made a move to freshen up its balance sheet and provide some much needed cash to keep itself healthy for the next several years.

In the US on Friday, Rio sought to alleviate any future concerns with cash flow by executing a sale of over US$3 billion in corporate bonds. The sale was the biggest high grade deal since the Fed announced it will be pulling back its bond purchasing program.

Initially, it was thought that a lesser amount would be sold but investors took a liking to the sale and the shorter maturity of the bonds appealed to many buyers. The fears over interest rates rising when the US central bank ends its bond buying program has prompted many companies to get in while they can.

Jesse Fogarty, managing director of Cutwater Asset Management, said that companies in metals and mining have been underperforming the market due to expectations of global growth, but said the new funds would offer protection for Rio.

Although the company could have gotten a better deal only three weeks ago, Gary Pollack of Deutsche Asset & Wealth Management said Rio took advantage of the “opportunity to sell bonds with rates still relatively low historically”.

The move comes as resource companies shift away from highly geared growth opportunities to a more conservative and efficient approach to production. Many of Australia’s biggest companies like BHP (ASX: BHP) and Woodside (ASX: WPL) have scrapped plans of domestic expansion and are now focused on core business strategies to deliver a positive return for shareholders in a time of global demand concerns and rising costs.

Foolish takeaway

This is Rio’s second big move in the past week, after it announced the sale of its Eagle project for an estimated US $235 million. Rio is strategically placing itself in the best position possible to counter cyclical changes in demand for its products which enable longer term objectives to be met.

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Motley Fool contributor Owen Raszkiewicz owns shares in BHP.

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