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Rio sells Clermont stake for $1 billion

Yesterday, Rio Tinto (ASX: RIO) announced the sale of its 50.1% stake of Clermont coal mine in Queensland for US$1.015 billion to GS Coal.

The sale is part of a wider cost-cutting agenda by CEO Sam Walsh to shore up funds and return to shareholders as the company faces sustained weak coal prices and rising debt. Rio’s chief financial officer, Chris Lynch, said “The sale of Clermont Mine will allow us to realise value for our shareholders as we continue optimising our portfolio. It also demonstrates our focus on strengthening our balance sheet and taking a disciplined approach to allocating capital across the group.”

Despite its intention to sell the country’s third-largest thermal coal mine, the company reaffirmed its presence in Queensland’s coal industry. “Rio Tinto remains committed to a long-term future in central Queensland. Production has recently commenced from the US$2 billion extension of the Kestrel Mine and studies are currently underway to extend production from the Hail Creek Mine.”

Rio currently has debts around US$22 billion as a result of poor investment decisions and weak commodity prices weighing in on earnings. However since the beginning of 2013, under the control of Mr Walsh, the company has sold off more than US$2.9 billion in assets including an interest in Northparkes and sales of both Eagle and Palabora.

However, so far the company has been unable to sell assets that would truly satisfy investors and shareholders. RBC Capital Markets analyst Des Kilalea says the Clermont sale is good but it’s not what shareholders are looking at right now. “It’s not a bad price, the market will be reasonably pleased… but the one everyone is looking for is IOC.”

Rio’s sale of its Iron Ore of Canada business is currently proving a difficult task and comes after the miner already retreated from the sales of both its aluminium and diamond businesses.

Foolish takeaway

Rio Tinto’s cost-cutting should be welcomed by investors who are hoping the company can pay down debt and take advantage of record production from its iron ore business and, ultimately, return to shareholders. Many stocks in the mining industry, such as BHP (ASX: BHP) Fortescue (ASX: FMG), are being forced to react to commodity prices, debt and pressure to return to investors.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

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