MENU

Rio sells down European aluminium stake

Rio Tinto’s (ASX: RIO) cost-cutting drive is continuing, with the latest inflow from a sale of its shares in Amsterdam-based aluminium company Constellium NV (NYSE: CSTM) for around $US330 million.

Since coming into office earlier this year, CEO Sam Walsh has embarked on a strict cost-cutting agenda as he seeks to maintain the company’s single-A credit rating. Mr Walsh, who took control of the company after a series of massive write-downs and mounting debt, has set a goal of US$5 billion in savings before 2015.

In the past year, Rio has sold off a number of projects and businesses, including its Eagle mine in the USA (US$325 million), Palabora (U$S373 million), two aluminium smelters in France, Northparkes copper mine (US$825 million), Clermont coal (US$1.015 billion) and now 19.3 million shares in Constellium. This makes Mr Walsh’s plan of paying down debt and making the huge savings on costly projects much more likely.

The problem for Rio is that many of the assets it’s now looking to sell are the legacy of its former management. Constellium and most of its aluminium businesses, some of which are proving very costly and are continually being written down, come from the company’s acquisition of Alcan – a Canadian aluminium producer it bought for $38 billion in 2007.

Although the company has had successes with its recent sales, the aluminium, diamonds, Iron ore of Canada (IOC) and Mozambique Coal businesses are all much larger sales and have been unable to impress suitors. Investors are watching closely to see whether Rio will be able to offload its IOC business, as it would fetch between $3 and $4 billion.

Foolish takeaway

Rio Tinto, along with rivals BHP (ASX: BHP) and Fortescue (ASX: FMG) have shrugged off concerns over their ability to deliver shareholder value in the long run and bullish investors have been rewarded with strong gains in the past six months. However for Rio and Fortescue, huge debts and an almost pure reliance on Chinese iron ore markets means they’re riskier alternatives to the more diversified BHP. It has a number of highly profitable divisions outside of iron ore.

Get our top dividend stock -- FREE!

Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Owen Raskiewicz does not own shares in the companies mentioned here.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!