Mining giant Rio Tinto has agreed to sell its Mozambique coal assets to an Indian investment group for $50 million as part of an effort to cut costs and bring down its multibillion-dollar debt, WallStreetJournal reports.
International Coal Ventures Private Ltd. is buying Rio Tinto’s Mozambique business — one of two poorly-timed purchases by Rio that led to the 2013 departure of former CEO Tom
Albanese, according to WSJ. The other acquisition Rio made was Alcan Inc. in 2007, according to WSJ.
London-based Rio Tonto bought the troubled Mozambique coal business in 2011 through its $3.7 billion takeover of Riversdale Mining Ltd., just as coal prices were going sky high based on supply disruptions in major coal-producing countries and demand from Asia, WSJ reports.
A British-Australian multinational metals and mining corporation, Rio Tinto has offices in Melbourne, Australia.
In 2013, the company disclosed a $2.9 billion impairment charge against Riversdale after
building the required infrastructure proved more challenging than originally expected.
Investors blamed the loss of Rio’s investment on another poorly timed mining deal.
Rio Tinto bought Canadian aluminum maker Alcan in 2007 for $38.1 billion when prices for aluminum were at their highest in 20 years, paying a 65-percent premium, according to WSJ.
“This is all the hangover from that party,” said Neil Gregson, a fund manager who specializes in resources at J.P. Morgan Asset Management .
Coal prices have fallen by as much as two thirds since 2011 as new mines planned during boom times moved into production. Oversupply happened just as demand growth from key buyers such as China has slowed.
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Falling coal prices have forced mining companies including BHP Billiton Ltd. and Anglo American PLC to rethink their operations, resulting in asset sales, shelved expansion plans and staff cutbacks. Glencore is also due to close one of its Australian coal mines.
In Mozambique, Rio Tinto had planned to ship the coal along the Zambezi River. That proved undo-able because of problems securing the required government approvals and dredging the river. The coal’s high ash content also required expensive processing.
Rio Tinto—which earns most of its revenue from its Australian iron-ore exports—said it expects to complete the sale of its Benga coal mine and other projects in the Tete province of Mozambique by the end of September.
International Coal Ventures was set up in 2009 to buy assets abroad by government-run companies including Coal India, Steel Authority of India Ltd. and power producer NTPC Ltd. The deal, expected to be the Indian company’s first, will help provide coking coal for local steelmakers, WSJ reports.
“With this large acquisition, long term security of supply of a critical raw material for the steel industry is ensured,” said Ujjwal Bhaskar, spokesman for Steel Authority of India, in a TimesOfIndia report.
In the first half of 2014, Rio Tinto’s Mozambique unit produced 246,000 metric tons of hard coking coal, used in steelmaking, and 230,000 tons of thermal coal, used to generate electricity, according to WSJ.
Rio Tinto has been unloading, or trying to unload, unwanted assets and secure its single-A credit rating, according to WSJ. In 2013, it agreed to sell its stake in the Clermont coal mine in Eastern Australia for about $1 billion to Japan’s Sumitomo Corp. and Glencore PLC. The company has a goal of almost halving its annual capital expenditure on projects.