2nd UPDATE: Alcoa Gives Up Rio Stake For Profit On Value Now
February 12 2009 - 4:34AM
Dow Jones News
Alcoa Inc.'s (AA) balance sheet is getting a much needed boost
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 as a joint
venture with Aluminum Corp. of China, or Chinalco 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.
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.
At the same time, Alcoa announced it was exploring strategic
partnerships with Chinalco. These may include greenfield projects
as well as investment in existing operations and acquisitions,
Alcoa spokesman Kevin Lowery told Dow Jones Newswires.
This isn't the first time the two companies have worked
together. The relationship dates back to November 2001, when Alcoa
signed up to a strategic alliance with Chinalco's subsidiary,
Chalco. But the metals landscape has changed dramatically since
then, with China now dwarfing the rest of the world in terms of
both its alumina and aluminum production.
"Looking to the future we see many such opportunities to build
on, and deepen, that strong base of collaboration and cooperation"
between Alcoa and Chinalco, the Chinese company's president Xiao
Yaqing said.
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. If it goes ahead, it
would double Chinalco's stake to 18% and give it access to what
market participants describe as the crown jewels in Rio Tinto's
portfolio of metals and mining assets.
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 as it had
contributed $1.2 billion to the original $14.1 billion Rio
investment.
-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413;
andrea.hotter@dowjones.com