[miningmx.com] — RIO Tinto has finally confirmed it intends selling off its 57.7% stake in Palabora Mining (Palabora) after years of denying market rumours it was looking to dispose of this asset.
Rio Tinto announced today that it “had initiated a commercial process to sell its shareholding and Anglo American will participate in that process.’
Anglo American holds a 16.8% stake in Palabora.
A Rio Tinto statement issued on Monday said that, “the copper operation is not of a scale to suit Rio Tinto or Anglo American’s investment criteria.’
Market speculation that Rio Tinto was looking to get out of Palabora – as well as South Africa in general – date back to at least March 2007 when a well-placed mining industry source told Miningmx that this was the group’s strategy.
The source commented, ” they may dress it up as a BEE transaction but they want out.
“They are looking for a buyer and the process is well advanced. They have been running a data room at Palabora and taking prospective buyers around the operation for months.”
That was denied at the time by then Palabora chief financial officier Charles Asubonten and Rio Tinto spokesman Nick Cobben.
Asubonten said, “we are going through the BEE process for the company. Rio Tinto is not planning to divest from the operation. “
Asked about speculation over Rio Tinto’s continued presence in South Africa, Cobben said at the time, “we do not comment on market speculation.
“However, I would direct you to the presentation given by our head of exploration, Eric Finlayson, at the recent Mining Indaba, in which he made some very positive comments on South Africa. “
In that presentation Finlayson made much of the group’s Chapudi coal project in Limpopo province.
But Rio Tinto subsequently sold off Chapudi in late 2010 at the rock-bottom price of $75m to Coal of Africa (CoAL) whose CEO – John Wallington – subsequently described the acquisition as a “bargain’ for assets on which three to four new mines could be developed.
Instead, Rio Tinto moved across the border in Mozambique bidding A$4bn for control of junior coal company Riversdale Mining and the projects it controlled on the developing Moatize coal field near Tete.
Rio Tinto will still have to invest billions of dollars on top of that purchase price to develop operating mines and the railway and port infrastructure required to get the export coal out of the country.
According to industry sources the reason Rio Tinto took this step is management’s belief that the logistical constraints can be sorted out more easily in Mozambique in co-operation with the government than in South Africa.
Expansion of South Africa’s coal export business faces severe bottlenecks in terms of investment required by State-controlled transport organisation Transnet in the railway lines to both Richards Bay and Maputo.
The coal exporters and Transnet have been haggling for almost a decade over the terms for expansion of the Richards Bay line to match the installed 91mt/year capacity of the Richards Bay coal terminal.
In Mozambique, Rio Tinto has stated its intention to work with Brazilian resource giant Vale and the Mozambique government to solve the country’s logistical issues.
Whoever buys Palabora will need deep pockets to keep the mine going because it is a huge, deep-level, block-caving operation that will need massive investment to extend its economic life beyond 2016.
According to the Rio Tinto statement studies are currently underway to extend the mine’s life to 2030.
Palabora’s other main asset is its magnetite business based on its massive surface stockpile of magnetite ore – which can be used for iron and steel production – built up over decades of operation.
Limited quantities of this magnetite are currently being exported through Maputo but the statement said, “future value creation at Palabora is likely to involve the on-site processing and beneficiation of magnetite, an opportunity that Rio Tinto and Anglo American believe will be best developed under different ownership’.
Any offer for Rio Tinto’s shareholding would amount to a change of control meaning the purchaser would have to extend the offer to minorities.
Once Palabora is gone then Rio Tinto’s major remaining asset in South Africa will be its 37% stake in titanium slag producer Richards Bay Minerals.
