BHP Billiton sells out of Richards Bay Minerals

Brendan Ryan | Wed, 01 Feb 2012 10:56

[miningmx.com] -- BHP BILLITON is to sell its 37% stake in titanium producer Richards Bay Minerals (RBM) for an undisclosed sum to partner Rio Tinto through a put option, and will exit the titanium minerals industry.

The group is selling out just as conditions in the titanium and heavy mineral sands businesses are picking up after a decade of underperformance – a view shared by RBC Capital Markets analyst Des Kilalea in a research report published in November. "We remain bullish on the mineral sands sector over the medium and long term," he said.

"While a slowdown in Chinese growth and concerns over the global economy may weigh on the sector in the short term, the fundamentals of excess demand over supply and Chinese growth underpin our positive view."

Exxaro Resources last year opted to keep its KZN Sands mining and smelting operations near Richards Bay going because of the recovery in the sector. It is in the process of merging its titanium operations with United States pigment company Tronox, in which it will become the largest shareholder.

The obvious question is whether the disposal by BHP Billiton represents a further divestment by the group from South Africa, following the sale of a string of coal assets over the past few years.

Said a BHP spokesperson: "BHP Billiton’s strategy is to focus on large, long-life assets that the company operates. RBM is the sole mineral sands asset currently held ... and is not operated by the company.

"The titanium minerals industry is also one of the smallest markets in which BHP Billiton participates, and is unlikely to make a significant contribution to the company’s future profitability.

"We had attempted to grow in the industry through the Corridor Sands project in Mozambique. However, this project was halted in 2009 when studies failed to identify a value adding development alternative.

"There are few other known, quality, large-scale resources and it is unlikely that BHP Billiton could build a material position in this industry.

“Given the non-core nature and non-operating position in RBM, the relatively low earnings contribution the asset makes to the group and the low probability of developing a material position in this sector, BHP Billiton has elected to sell its interest in RBM.

"South Africa remains an important country for BHP Billiton and the company continues to own and operate significant energy coal, manganese and aluminium assets in the country."

Asked about the price of the transaction with Rio Tinto, the spokesperson said "the put option follows a process agreed when RBM was restructured in 2008, whereby value is determined by two experts appointed by each of BHP Billiton and Rio Tinto.

“The results of this process will be communicated when the transaction closes.”

BHP Billiton acquired the Corridor Sands project when it took over the former Western Mining Corporation (WMC) in 2005.

WMC had bought Corridor Sands from entrepreneur Rob Still’s Southern Mining company in 2003.

WMC’s stated plans were to build a plant that would initially produce 375,000 t/year of titanium slag, rising eventually to 1 Mt/year, which would have put Corridor Sands on a par with RBM.