Rio Tinto Limited sold its last remaining coal asset for US$2.25 billion

Rio Tinto Limited (ASX: RIO) announced today the sale of its last remaining coal asset, an 80% interest in the Kestrel coal mine in Queensland, for US$2.25 billion. The buyer is a consortium formed by private equity manager EMR Capital and Indonesian coal company Adaro.

In the space of a week, Rio announced the divestment of US$4.15 billion worth of coal assets, including the Hail Creek mine and Valeria development project sold to Glencore and a 75% stake in the Winchester South project sold to Whitehaven Coal Ltd (ASX: WHC). The company thus completed the dismantling of its coal business, following other major coal assets sales in the past two years.

The sale of Kestrel is subject to approval from the Foreign Investment Review Board and the Queensland Government and should be completed in the second half of 2018. Tax payable on the sale is estimated in the order of US$500 million.

CEO Jean-Sébastien Jacques said the recent divestments make the company’s portfolio “stronger and more focused on delivering the highest returns through targeted allocation of capital”.

As at 31 December 2017, Rio had slashed its net debt 60% from the previous year to US$3.8 billion, and decreased its net gearing ratio from 17% to 7%.

At the time of writing, the stock is down 0.3% to $73.94.

Foolish takeaway

Rio Tinto is not afraid of making major divestments to streamline its business, and I wouldn’t be surprised to see more sales of non-core assets (aluminium and copper) in the near future. The company strengthened its balance sheet in 2017, so now I expect it to return some of that cash to its shareholders.

I think Rio Tinto has the potential to grow and pay large dividends, and I’d take advantage of the 9% decline in the share price over the past month to buy the stock.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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