Rio Tinto’s exit from aluminium business looms amid asset sale

As June 30 looms, so does the first of a string of asset sales by Rio Tinto’s new chief executive, Sam Walsh, as he sets out to rid the company of more than $US13 billion ($13.7bn) in underperforming and non-strategic assets.

But the scale of the clean-out could be doubled to $US26 billion if increased industry and analyst chatter that Mr. Walsh plans to expand the program to include all of the group’s aluminium assets proves correct.

Rio has previously flagged the sale of its Pacific Aluminium unit, which houses the worst-performed and most-challenged of its global aluminium interests. PacAl is valued at no more than $US1.5 billion and after a couple of years of trying there has been no sign Rio can find a buyer or dress it up sufficiently to float it off.

The best of the aluminium assets, housed in Rio Tinto Alcan, have been quarantined from the PacAl sales process. Because they too have struggled in the face of weak aluminium prices, they have been the subject of an ongoing cost-reduction effort to justify their long-term retention.

But widespread speculation now is that Rio is exploring a wholesale exit from the business, with PacAl to be rolled back into Rio Tinto Alcan and the whole lot offered up next year in an initial public offering.

Analysts at Citi in mid-May reflected the broader view that aluminium is a low-margin business and that the ill-timed acquisition of Alcan by Rio remained a drag. It said a float or distribution to shareholders of Rio Tinto Alcan was one of the steps Rio could take to ensure a major boost to its market rating.