UPDATE: Alcoa Gives Up Rio Stake For Profit On Current Value
February 12 2009 - 4:16AM
Dow Jones News
Alcoa Inc. (AA) is exploring strategic partnerships with
Aluminum Corp. of China Ltd. (ACH), or Chinalco, as the company
gives up its stake in Rio Tinto PLC (RTP) for significantly more
than it is currently worth.
The U.S. producer, which took a stake in Rio Tinto just over a
year-ago, will get $1.021 billion in cash for the interest by July,
it said Thursday. At current market prices, the stake is worth
around $300 million.
Alcoa also will receive its pro rata portion of dividends paid
by Rio Tinto to date since the investment was made.
"This transaction, combined with our intention to explore
opportunities to expand our commercial relationship, strengthens
Alcoa's ability to weather the economic downturn," said Klaus
Kleinfeld, Alcoa president and chief executive.
Strategic partnerships may include greenfield projects as well
as investment in existing operations and acquisitions, Alcoa
spokesman Kevin Lowery told Dow Jones Newswires.
The move comes as Rio Tinto announces a proposed $19.5 billion
strategic partnership with Chinalco that includes a $7.2 billion
convertible bond issue and $12.3 billion in asset sales across
Rio's aluminum, copper and iron ore business.
The deal gives Alcoa's balance sheet a much-needed boost. The
company was downgraded to the brink of junk status by Standard
& Poor's Rating Services earlier this week, citing expectations
of deteriorating credit metrics this year.
The company, the world's largest producer of aluminum, has been
leading the way in cutting output amid collapsing demand for the
metal and rapidly rising inventories, which had caused prices to
plummet. Aluminum prices have more than halved since peaking in
July at $3,380 a metric ton, leading Alcoa to reduce its production
capacity by some 18%.
Alcoa said the transaction will improve its cash position and
result in a positive impact on its debt-to-capital ratio. The
company will record a non-cash after-tax loss of approximately $120
million on the investment in the first quarter of 2009.
-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413;
andrea.hotter@dowjones.com