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Borneo, Sarawak, Sarawak Corridor of Renewable Energy (SCORE), Sarawak Economy

Why the Rio Tinto aluminium smelter project fell through …

THIS week’s announcement of the scrapping of a proposed aluminium smelter project between Rio Tinto Alcan (RTA) and Cahya Mata Sarawak (CMS) has gotten a lot of people talking.

Some have even questioned whether the Sarawak Corridor of Renewable Energy (SCORE) would be able to succeed following the pullout.

Well there are already investors lining up to take over where that project left off. Read why SCORE won’t be affected by the scrapping of this deal here.

Those in the global business community had been expecting the cancellation of the Rio Tinto project for awhile now, not because of anything to do with SCORE but everything to do with Rio Tinto’s global restructuring.

Analysts have also cited China’s policy of over-producing aluminium to drive down the alumina price and get cheaper input costs. Read that here.

Rio Tinto first signalled a major retreat from its global aluminium business last October when it unveiled plans to sell 13 assets, including smelters and alumina refineries, estimated to be worth US$8 billion to boost its margins.

This came just four years after the company purchased aluminium giant Alcan for US$38.1 billion in one of the sector’s biggest ever deals. It was quite a disastrous move because last month, Rio Tinto slashed the book value of Alcan by US$9 billion.

Yesterday, Rio Tinto received a binding offer from private equity group HIG for three French alumina plants  – located in Gardanne, La Bathie and Beyrede in southern France.

The company also operates two aluminium production plants in France — in Dunkirk on the north coast and at St Jean de Maurienne in the Alps, the historic heartland of the French aluminium industry — through Rio Tinto Alcan.

The latter recently told unions it is considering a sale of the St Jean de Maurienne plant as it faces a rise in energy costs when a 30-year-old electricity supply agreement with EDF expires in 2014.

In England, Rio Tinto will close its Lynemouth smelter this month, costing 300 jobs, and is believed to be considering the future of its Tasmanian smelter where 600 people work.

The company is also exiting its diamond business, which includes operations in Zimbabwe, Canada and Australia, with assets worth up to US$2 billion.

Rio Tinto would now focus its business on expanding into more scaleable and profitable commodities such as iron ore, copper and uranium.

Well despite how some have tried to spin it, the facts are that Rio Tinto pulled out of the SCORE project because it is trying to restructure its business globally to boost profitability.

It is good to know that SCORE is still attracting global investors and that the worry now is not a lack of investors but ensuring that all our investors receive enough electricity for their needs.

The reports from Reuters:

Rio Tinto to sell French alumina plant to HIG

PARIS/LONDON – Rio Tinto has received a binding offer from private equity group HIG for three French alumina plants that are part of an estimated $8 US billion of aluminium assets put up for sale last year by the global miner to try to boost margins.

Rio Tinto said on Wednesday it had agreed a period of exclusivity with HIG and would respond to the offer after consulting unions.

Both Rio Tinto and Olivier Boyadjian, managing director of the private equity firm’s French unit, declined to provide financial details.

Rio Tinto is selling the three plants – located in Gardanne, La Bathie and Beyrede in southern France – as part of a worldwide plan to scale back its activities in aluminium.

Rio Tinto, the world’s third-largest diversified miner, signalled the retreat last October when it unveiled plans to sell 13 assets, only four years after buying aluminium giant Alcan in one of the sector’s biggest ever deals.

Rio Tinto had told Reuters on Tuesday that it had seen “quite a lot” of trade and private equity interest in the aluminium assets. This marks a shift for the private equity industry, which has typically shied away from the capital intensive, long-dated mining sector.

Rio Tinto’s speciality alumina business is the largest integrated supplier of non-metallurgical grade alumina, with the three plants in France and one at Teutschenthal in Germany. It employs 730 people.

Alumina, extracted from bauxite ore, is an ingredient in making aluminium but can also be used separately as an abrasive, due to its hardness.

Rio Tinto also operates two aluminium production plants in France, one in Dunkirk on the north coast and one at St Jean de Maurienne in the Alps, the historic heartland of the French aluminium industry.

Rio Tinto’s aluminium business, Rio Tinto Alcan, told unions this month it was considering a sale of the St Jean de Maurienne plant as it faces a rise in energy costs when a 30-year-old electricity supply agreement with EDF expires in 2014.

The aluminium producer said it was continuing negotiations with EDF over a new contract.

Like the steel sector, aluminium production in Europe has come under threat from cheaper output elsewhere, notably in China, as well as its relatively small margins compared with other commodities like iron ore.

© Copyright (c) Reuters

Diamonds not forever: Rio Tinto may sell business

MELBOURNE/LONDON – Rio Tinto, the world’s third-largest miner, effectively invited bids on Tuesday for its diamonds business, on its books at $1.2 billion, and joined BHP Billiton in a retreat from an industry that has lost its sparkle for mining majors.

Rio Tinto, which runs three mines in Australia, Canada and Africa, said it was reviewing its diamond business and would consider selling it, as it focuses on expanding in more scaleable and profitable commodities such as iron ore, copper and uranium.

Its diamond business — the 100 percent-owned Argyle mine in Australia, famous for its pink diamonds, as well as 60 percent-owned Diavik mine in Canada and 78 percent-owned Murowa mine in Zimbabwe — comes on the market at the same time as BHP Billiton tries to sell its EKATI diamond mine in Canada.

“It’s a great business in terms of diamonds, but I think that in terms of the scale, it ceased to have the meaningful place (for Rio) that it used to have, so we are looking at a number of options, including selling,” Rio Tinto Chief Financial Officer Guy Elliott told the Reuters Mining and Metals Summit, hours after the review was announced.

He said Rio had not yet made any decision about how it could sell the assets or what ownership structures it would consider.

Deutsche Bank valued Rio Tinto’s diamond arm, which accounts for less than 2 percent of profit, at some $2.4 billion, while another analyst who declined to be named gave a valuation of around $2 billion for the business.

Rio’s mines, one of which is moving into more complex underground operations, could attract the same bidders that have circled BHP’s EKATI mine, including smaller industry players seeking to boost their clout, private equity firms and even jewellers, who have sought mine stakes to secure supply.

Bidders in the running for BHP’s mine have included private equity firm KKR and luxury jeweller Harry Winston , which already has a 40 percent stake in Rio’s Diavik mine.

“Expressions of interest, well, people have always been asking about this business for obvious reasons, it’s a very attractive business,” Elliott said, declining to comment further.

A drop in diamond prices since July, knocked by Europe’s downturn, has hit sentiment towards the sector, but the longer-term dynamics for the industry are looking up, with India and China expected to drive longer-term growth in demand.

DE BEERS COY

Rio mined 11.7 million carats of diamonds last year, about a third of the amount dug up by each of the world’s top two producers, Russia’s state-owned Alrosa and De Beers.

Alrosa produces 24 percent of the world’s diamonds, De Beers 21 percent, and Rio and BHP about 7 percent each.

Rio and BHP’s exit from diamonds is unlikely to resurrect the diamond cartel they broke up a decade ago when they refused to sell their diamonds through De Beers, the South African giant soon to be majority owned by global miner Anglo American , with many smaller players now populating the market. De Beers could also face antitrust issues in any bid.

“I’m not sure that’s a way De Beers wants to go, or they are the right buyer to snap it up,” said David Lennox, an analyst with broker Fat Prophets.

De Beers Chief Executive Philippe Mellier, speaking at the Reuters Mining and Metals Summit, said global miners BHP and Rio had understood that in their large portfolios of commodities “they had something that was not a commodity” and did not fit.

“They have to play a key role in everything they do and they are very small players in the diamond world — maybe the interest is no longer there,” Mellier said.

He declined to comment on De Beers’ own interest in the asset: “We are here to grow the business. We will look at any sensible opportunity, but we will never comment on it,” he said.

For Rio, diamonds last year accounted for less than 0.1 percent of group net earnings, slumping 86 percent to just $10 million on revenue of $727 million.

The open-pit Argyle mine, undergoing a $2.1 billion expansion underground, is the largest diamond producer in the world by volume and the largest source for pink diamonds, though only 0.1 percent are actually considered pink.

Rio’s shares closed up 0.7 percent in London, above a broadly flat broader mining sector.

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