Rio Tinto's Iron Ore Troubles Assuaged by Coking Coal Mine Sell-Offs?

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Three major metal industry giants, India’s Aditya Birla Group, Coal India Ltd, and China’s state-owned Shenhua Group Corp Ltd were among the companies in the reckoning to buy some of Rio Tinto Ltd’s Australian coal assets, valued at an estimated US$3.2 billion.

Rio Tinto was said to be offloading a string of assets to help cut its $26 billion in debt and protect its single-A credit rating, and also planning to reduce exposure to a flailing coal industry.

A report filed by Reuters said Rio Tinto was selling a 29% stake in its Coal & Allied business, and also its majority stake in the Clermont mine in Queensland state.

In a separate move, a financially troubled Rio Tinto was said to be planning the sacking of its staff at its iron ore operations, also in Australia. Online reports said the jobs were at the level of executives at the general manager and manager level. The pruning of jobs from the Perth office was part of the process of restructuring Rio’s iron ore business under the unit’s new boss, Andrew Harding. Staff will be fired or offered jobs elsewhere at the company.

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Rio Tinto has been trying to cut its $5 billion worth of expenses from its global operations in 2013-14. Part of the Rio’s debt was its $38 billion purchase of aluminium producer Alcan.

In the Coal & Allied business, Japanese trading house Mitsubishi Corp was Rio’s 20% co-owner, so also a co-owner in the Clermont mine, along with Japan’s Electric Power Development Co Ltd (J-Power) and a consortium of other Japanese utilities.

Reports said although Mitsubishi had first right to buy the stakes Rio had put on the block, it was unlikely to exercise those rights for now. The stake in Coal & Allied, which operates thermal coal mines in New South Wales, could fetch around US $1.7 billion while the Clermont stake could rake in US $1.5 billion, analysts say.

The privately held Shenhua Group had shown some interest in buying coal mines in Australia. On the other hand, India’s huge demand for coal was the reason for Aditya Birla and Coal India were bidding for the same. The Aditya Birla Group was in need of thermal coal for group companies Hindalco Industries Ltd, India’s top aluminium producer, and UltraTech Cement Ltd, the nation’s top cement maker.

Coal India produces about 80 percent of India’s total coal output, but growth had been blocked due to delays in environmental and other approvals for mining projects.

Read more Indian perspectives from Sohrab Darabshaw.

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