When Rio Tinto (ASX: RIO) CEO Sam Walsh, first stepped into office seven months ago, the only thing bigger than the company's debt was its reserves in iron ore – both are proving tough to get rid of.
With lower commodity prices looming for Australia's biggest iron ore exporter, Mr Walsh had no other alternatively than to put non-core, loss-making assets on the chopping block. In past months the company has sold a mine in the US for $325 million, two aluminium businesses in France and (surprisingly) its Northparkes copper mine in New South Wales for $US820 million.
However, the company has failed to sell its diamonds business, its coal assets in Mozambique and the rest of its aluminium business. Most recently the company's Iron Ore of Canada (IOC) has proven toughest to sell. Of the five bidders interested enough to put in second round offers, only two companies are still interested – Canada's Teck resources and a consortium of Chinese buyers.
Sources say that Glencore, Apollo and Blackstone have all pulled out of the running for the steel making assets. It is believed that Rio has put a price tag of around US$4 billion for its 59% stake in the company although some have valued it at only US$2-3 billion.
The surplus amount of assets available on the market and uncertainty of iron prices in the near future have left analysts thinking that the sale of its IOC stake will be harder than expected.
Foolish takeaway
Rio Tinto is not the only Australian miner trying to save money through non-core asset sales. BHP (ASX: BHP) and Fortescue (ASX: FMG) have both put assets on the chopping block, but all three companies have pushed ahead with plans to begin producing even more iron ore, despite the bleak outlook on prices. Investors shouldn't feel they have to hold mining stocks in their portfolio, particularly when there are more certain and higher yielding stocks on the market.
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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
