RIO Tinto Group, the global mining leader has drawn a line under one of its most disastrous deals by offloading its Mozambique coal assets for $50 million, a decision that has forced the company’s Chief Executive Officer to leave.
The London-based company bought the assets as part of the $3.7 billion purchase of Riversdale Mining Limited in 2011, writing them down by $3 billion last year. The charge, part of $14 billion in write-down on assets including the $38 billion purchase of Alcan Inc. in 2007.
The write down is one of the reasons that forced the departure of its company boss, Tom Albanese.
Analysts have described the development embarrassing.
“It’s a reminder of what happened during that period when things went awry and is very embarrassing,” said Mark Taylor, a Sydney-based analyst with Morningstar Inc.
“It represents a lost opportunity under the leadership of Tom Albanese, though it’s small biscuits compared to what was effectively burned under the Alcan acquisition,” he added.
In the aftermath of the write-down, the Indian consortium, International Coal Ventures Pvt. Limited has shown interest in the assets.
Rio slipped 0.7 per cent to 3,450p at 8:29 a.m. in London, trimming its gain for the year to 1.1 per cent.
Analysts say the Mozambique coal deal, which includes projects in the country’s Tete province, is subject to regulatory approvals. It is further expected to close in the current quarter, the company said in its statement although other operations in the country will be unaffected.
Meanwhile, Rio’s Turquoise Hill Resources Limited unit also agreed to sell a 29.95 per cent stake in Mongolian coal producer SouthGobi Resources Limited for C$25.5 million ($23.5 million).
And National United Resources Holdings Limited will pay 45.5 Canadian cents a share, a 31 per cent discount to SouthGobi’s last traded price in Toronto this week.
That deal comes almost two years after Aluminum Corp. of China Limited, China’s biggest producer, dropped a bid to buy 60 per cent of SouthGobi for C$925 million.
Turquoise Hill will maintain a 26 per cent stake in SouthGobi after the deal, the buyer added in its statement.
The deal for Rio’s Mozambique coal unit is the first acquisition for ICVL, formed in 2009 with investments from steelmakers Steel Authority of India Limited and Rashtriya Ispat Nigam Limited, iron ore producer NMDC Limited, Coal India Limited and power generator NTPC Limited (NTPC) to buy coking coal mines overseas.
Staff at the Benga mine in Mozambique, which started commercial production in the third quarter of 2012, have focused on cutting operating costs and increasing productivity.
Rio cited transportation constraints and a cut to recoverable coking coal estimates in its write-down of the asset.
“The best description is that it’s a black eye for Rio,” said Donald Williams, Sydney-based chief investment officer at Platypus Asset Management Limited, which oversees about $1.3 billion ($1.2 billion), “A lot of investors were questioning the transaction when it occurred and their worst fears have been realized.”
Platypus holds shares in BHP Billiton Limited and doesn’t have holdings in Rio Tinto, Williams concluded.