By Rhiannon Hoyle
PERTH, Australia-- Rio Tinto PLC said it won't follow
Anglo-Australian rival BHP Billiton Ltd. by spinning off unwanted
assets, hosing down speculation the miner may carve off parts of
its business as it grapples with a downturn in commodity
markets.
Rio Tinto's chairman and chief executive said they were happy
with the size of the company--one of the world's biggest producers
of commodities including iron ore, copper and diamonds--and that
they were looking at several options to expand the business.
Their comments come a day after BHP's shareholders voted
overwhelmingly in favor of a plan to spin off a suite of assets,
including nickel, aluminum and manganese operations. BHP Chief
Executive, Andrew Mackenzie argued the current downturn was the
perfect time for the corporate split, as different tailored
strategies would allow the assets to perform better in the face of
weaker commodity prices.
"I can say categorically that at Rio Tinto, we are not
considering spinning off any of our assets," Rio Tinto chairman Jan
du Plessis said Thursday. "I think we are happy with our portfolio,
and we're certainly not considering spinning off coal or spinning
off aluminum or anything like that."
While Mr. du Plessis said spinoffs can be an effective tool for
generating value, CEO Sam Walsh said he viewed Rio Tinto's swag of
asset sales--US$17.5 billion worth in the past five years--as
achieving a similar objective to BHP's corporate breakup. BHP has
also recently been selling off individual pits and processing
facilities.
Investors and analysts have long questioned whether Rio Tinto
might look to spin off assets, particularly its Alcan aluminum
business--which has faced years of costly write-downs.
A restructuring of its business earlier this year sparked fresh
speculation other commodity groups could be in the firing line.
When the shake-up was announced in February, some analysts
suggested Rio Tinto's decision to lump coal in with copper, and say
goodbye to energy chief Harry Kenyon-Slaney, a Rio veteran of
nearly 25 years, was possibly a signal it may exit the sector.
Investment bank Jefferies estimated the coal business is worth
around US$3.6 billion and would likely attract buyers if Rio Tinto
decided to walk away from the industry.
In a speech Thursday, Mr. Walsh acknowledged conditions in that
energy sector remained extremely tough. He said Rio Tinto was
continuing to cut costs at its Australian coal mines to improve
profits.
Rio's top ranks meanwhile wouldn't rule out acquisitions,
although Mr. du Plessis said it wasn't "occupying much of Sam's or
my brainpower at the moment."
Mr. Walsh said his acquisitions team would make a recommendation
to executives on whether Barrick Gold Corp.'s stake in the
ZaldASHYvar copper mine in Chile--up for sale and not far from the
Escondida operation in which Rio has an interest--could be an
option to pursue.
He laid out several growth plans for the miner, although most
face challenges from costs to environmental hurdles. Mr. Walsh
indicated Rio's South of Embley bauxite project in Australia may be
its next major investment, foreseeing he would put a proposal to
the board before the end of the year.
In recent years, iron ore has accounted for the bulk of Rio's
earnings.
Mr. Walsh said iron-ore supplies were being wound back globally,
including from high-cost Chinese mines. He estimated 22 million
metric tons of supply had been cut from the market in the first
quarter, and forecast 85 million tons worth would be closed in the
full year.
The miner's own shipments of iron ore fell in the first three
months of the year, due to wet weather and a train derailment, but
Rio signaled it will compensate for the weaker start to 2015 to
ensure it meets a previously announced full-year target of up-to
350 million tons.
On Thursday, Mr. Walsh said management was continuing to push
out the timeline for Rio's Silvergrass iron-ore project in
Australia, which has already been delayed three times in the past
18 months.
Still, Rio Tinto has attracted criticism from some politicians,
rivals and analysts for its continued expansion of its Australian
iron-ore mining operations, even as prices of the raw material have
fallen to a decade-low.
"I can assure you, not a single shareholder has indicated to us
that they're unhappy with what we are doing," said Mr. du
Plessis.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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